Russia Credit Risk Spikes Most In 5 Years As "Real Economic War" Escalates

Russia's 5Y CDS exploded by the most since June 2013 (a 34% spike in default risk in 3 days) this week as US sanctions and now direct threats have escalated geopolitical tensions globally.

As Bloomberg notes, President Donald Trump’s warning for Russia to “get ready” for missiles on Syria sent investors rushing for protection.

The cost of insuring sovereign debt against default for five years using credit-default swaps jumped to 162 on Wednesday, the highest since Aug. 1.

Trump’s tweet added to the pressure that Russian markets have faced since the U.S. imposed its harshest sanctions to date last Friday.

“Concerns about Syria are lifting Russia’s risk premium, which was already elevated because of the new sanctions,” said Ekaterina Iliouchenko, a money manager at Union Investment Privatfonds GmbH in Frankfurt. “All the negative factors coincided.”

Additionally, investors anxiety was further awakened as Turkish Defense Minister Nurettin Canikli said in interview with TV24 channel on Wednesday.

“If there’s an attack by U.S.-supported forces to the forces that Russia supports” in Syria, the latter wouldn’t leave that unanswered.

“This danger has been a fact for a long time and it will continue...”

“A spark, a fire could pave way for a conflict that would blow up the whole region."

All of which means Russia is now 'riskier' than South Africa, almost as risky as Costa Rica, and twice as risky as India.

As Bloomberg reports, the volatility prompted the Russian central bank to halt foreign-currency purchases under a budget rule aimed at insulating the economy from swings in oil, Russia’s main export. The Finance Ministry canceled its weekly bond auction for the first time since the 2015 collapse in crude prices. Auctions will resume when the market stabilizes, the ministry said in a statement late Tuesday.

“The sanctions aren’t just increasing, they’re turning into a tool of real economic war,” Prime Minister Dmitry Medvedev told parliament earlier Wednesday.

“We will take all measures needed to stabilize the situation.”

The latest sanctions are notably worse than earlier ones over Ukraine because they specifically bar any trading of securities of targeted companies rather than just blocking access to new international funding.

“All Russian companies could potentially be at risk, and the impact could be quite substantial,” said Stephane Monier, chief investment officer at Bank Lombard Odier & Co Ltd. in Geneva.

The iShares JP Morgan EM Local Government Bond ETF, of which Russia is a major component, suffered its biggest outflow since October on Tuesday.

Comments

Adolph.H. Thu, 04/12/2018 - 04:47 Permalink

The interesting bit is that nobody compares the Russian situation to the elephant in the room, namely the American situation. 

If Russia's future seem grim, what to conclude about the American one? 

----

It's okay not to be a Jew.

Davidduke2000 BritBob Thu, 04/12/2018 - 05:43 Permalink

soon or late argentina will repatriate these islands that are called MALVINAS and the uk would not dare go to defend them as they are of no value to them. 

Russia has more friends in the world than the us, even though the us has vassal states, it reminds me the old soviet union that lost its vassal states who ran for the exit when they had the chance.

the us is bound to crash financially as more countries are moving away from the dollar once it reaches its critical mass leaving the usd, the end will be devastating which will make the 1929 depression look like a picnic.

In reply to by BritBob

Davidduke2000 Thu, 04/12/2018 - 05:02 Permalink

it's quite funny with these credit agencies. Russia has a reserve of $400 billion in gold and $100 billion in cash with no debt and no yearly deficit. but the west propaganda machine keeps churning butter.

while the us owes $$$trillions that it cannot pay but can print money at will and pretend it is rich.

Soon or late the criminals will have to pay the price for printing fake usd.

Russia is equipped to abandon the west completely and stick with Asia as most of the country is situated in Asia and most of its market is in asia. if Gold doubles in price the Russian gold reserve will double in value to $800 billion and if it triples  it will go to $1.2 trillion, Putin must be laughing because whenever he wants he can crash the comex and send gold to heaven.  

Russia is even equipped to leave the swift monetary exchange and banking system, it created an alternative and can activate it on a day's notice, besides Russia does not deal much with the us its less than $25 billion, insignificant in today's standards , so all these sanctions are meaningless and equivalent to a hyenas barking. 

Jack Oliver Thu, 04/12/2018 - 05:30 Permalink

Wonder if Trump’s ‘tweet’ about ‘helping Russia with its economy’ - was tongue in cheek FUCKING cryptic ! 

Russia easily survived this last time because of China’s ability to ‘pre pay’ shit !! 

They will survive it again - Zio/US is wasting its time !! 

Debugas Thu, 04/12/2018 - 05:39 Permalink

i dont get it

russia's trade balance is positive

debt is below 10% of GDP

 

well yes private businesses have borrowed hundreds of billions in the west but this has nothing to do with the state finances

Davidduke2000 Debugas Thu, 04/12/2018 - 05:45 Permalink

the Russian business people borrow locally and in China, there is hardly any western loans because of the sanctions of 2014.

but bloomberg the joo does not leave any propaganda alone, he does what joos do best, spread false news to suit the daily situation, so do not ask why they were wasted. 

In reply to by Debugas

indygo55 Thu, 04/12/2018 - 07:04 Permalink

"Russia's 5Y CDS exploded by the most since June 2013 (a 34% spike in default risk in 3 days)"

Is this a free market with free price discovery? Who is buying these CDS's?

I remember back in the last crisis Goldman Sax didn't pay on some of these because they simply stated there was no "technical" default. So the CDS expired worthless and the issuer kept the premium. So who sets the price or is this just another fraudulent price in another fraudulent "market"?

More fake "news".

 

mog Thu, 04/12/2018 - 07:06 Permalink

Throw out every USA company in Russia - bar those that are profitable to the Russian economy.

Every one.

And publicise who they are - so those of us out here know exactly which companies to boycott.

Econogeek Thu, 04/12/2018 - 07:41 Permalink

When  I worked in Moscow in the late 90s, I learned that Russian economics are other-planetary.  Vzyat/vozmut and dat/davat in Russian mean 'borrow' and 'lend' OR they mean 'take' and 'give', depending on context.

So lending can mean giving, and borrowing is taking.  Plenty of other examples.  It's not just Marx & Lenin, it's cultural, it's Russian, the feudal way.

Otherwise we are natural allies of the Russians -- we are historically white, culturally Judaeo-Christian, and our art, dance, music, literature, architecture are Western, not Asian. 

Even though geographically Russia is mostly in Asia, it's culturally more Western than Asian, imo.  We should be allies. 

The Big Power types love to create enemies in their minds so they can use their shiny new toys.  They live and breathe for this.  It is beyond irrational.

 

 

 

Let it Go Thu, 04/12/2018 - 08:30 Permalink

Washington warmongers seem to be on a roll and it may be taking a toll on Russia. With all eyes turned towards Syria war grinds on in Ukraine but regardless of what we have been told the war in Ukraine is not about stopping Russia but about money, energy, and power.

The article below makes a strong case that what is happening in Ukraine really boils down to American companies wanting to sell and supply Europe with Liquid Natural Gas (LNG) and that they have been willing to start a war to make it happen.

 http://Ukraine War Is About Money, Energy, And Power.html