Today, on Bloomberg's TOP page, there is an article on Russia as a safe haven nine years after the default. It interviews people knowledgeable about the market, rattling off statistics and claiming up and down that it is different this time. There is no denying it is different time; Russia certainly has the ability to pay its debts. However, when push comes to shove, does it have the willingness to do so? Russia, under Putin, has become steadily more aggressive militarily and economically. It doesn't take a huge mental leap to arrive at scenarios where Russia and Russian companies just walk away from their debt obligations. The other way it is different this time is that Russian debt is much tighter this time than in 1998. Russia 30's are currently +118, which is wider than the +90 of six months ago. Still, this is a credit risk situation. Most other credit risk markets have come under lot more pressure. During late August-September 1998, Russian and associated debt dropped 50-60 POINTS.
Russia probably shouldn't be singled out, although there is a history with them, as most Emerging Markets have performed similarly over the past few months. Then the question that needs to be asked is: Is the current market situation the product of problems in the US mortgage market, or is it a problem of the undervaluing of credit risk in general? The markets have been focused so much on the former that they may have ignored the latter.
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