For Russia, a perfect storm of economic woe looms

Monday, December 8, 2014
By Paul Martin

It’s like 1998 all over again

By Joseph Adinolfi
Dec 8, 2014

NEW YORK (MarketWatch) — Plummeting crude oil prices, international sanctions, the crumbling ruble and rising sovereign debt yields are creating what one analyst called the “perfect storm” for the Russian economy.

And if the price of crude oil continues to decline, it’s only a matter of time before the Russian Federation is once again facing the prospect of default. The last time the country suffered a major default was 1998.

Yields on Russia’s dollar-denominated debt continue to climb. The yield on the most-recently issued dollar-denominated 10-year Russian bond was around 6.2% Friday, the highest level since it was issued a year ago.

Meanwhile, the spread on Russia’s sovereign credit default swaps has hit its highest level since July 2009, when the global economy was still suffering from the fallout of the financial crisis.

At the same time, falling oil prices are dragging the ruble lower. The U.S. Dollar was worth 52.6236 rubles Friday, just below a record high reached earlier in the week.

It’s not a pretty picture.

“They’ve found themselves in a kind of Catch-22,” said Bryan Turley, managing director of the investment banking group MLV & Co. “Its economy is moving toward recession, while the cost of their debt, which they would need to stimulate the economy, is going up. So something has to give. Either they have to take a chance and spend their way out of it, or they’re going to have to institute austerity measures.”

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