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Russia: A Late Underperformance.

08 December 2014 by lberuti

Since the beginning of the year, Russia has constantly been in the news. It all started with the Ukrainian revolution and the ousting of then President Yanukovych. It eventually led to the annexation of Crimea by Russia following a 3-month-standoff between Russia and western countries. The crisis was soon brushed aside by the market though, until new fightings appear in the Donetsk region. That sent Russia’s risk premium almost back the wides of the year, but it seemed back then that once again the market impact of these tragic events would be limited. The currency market was less sanguine about the whole situation as the rubble begun its relentless slide during the summer. But it is only when oil broke $90/barrel that the cost of insuring Russian debt really started to take off, as investors begun to anticipate serious repercussions for the Russian economy. The credit market eventually acknowledged that while western economic sanctions would leave Russia largely unscathed, a repricing of energy prices would be a serious blow to its credit worthiness.