Could Russia Be Looking at a Debt Default (Again)?

#1
Burhead

Burhead

God-Emperor of Politics
Joined
Jan 3, 2009
Messages
26,180
Likes
9,960
#1
The last time Russia defaulted on its debt was in 1998.

The Russian government halted all government bond sales since July and it just held its first bond sale on Sept 24 since that time. The yields exceeded 9%, a full 100 basis points over the previous auction. The 9.37% rate compares to the US rate on similar term bonds of 2.55%.

The ruble has lost 9% of its value against the US dollar since the Crimea invasion and lost a full 1% today.

The Central Bank of Russia announced today it is considering intervening into the currency market to prop up the ruble's value. That is the last governmental measure available before a currency collapses, like the ruble did in 1998.
Click to expand...

I saw this posted on another message board and found it interesting. So I decided to look up the stats and info he posted and it's true;

Ruble Drops to Record as Central Bank Intervention Level Nears - Bloomberg

Putin Ready to Borrow Above 9% Amid Bonds

The user who posted this predicted that Russia could default within 6 months, will be interesting to watch if true.
 
  • Like
Reactions: 1 person
#4
#4
ok, I will admit it, none of that made any sense to me. Bonds at 9.37% vs 8.86%??? Can someone explain, I get that it is bad, just not sure why. I get the exchange rate problem but the bonds and that other stuff was over my head.
 
#5
#5
LouderVol said:
ok, I will admit it, none of that made any sense to me. Bonds at 9.37% vs 8.86%??? Can someone explain, I get that it is bad, just not sure why. I get the exchange rate problem but the bonds and that other stuff was over my head.
Click to expand...

Yea so Russia issues bonds. Someone in the market says we will buy X amount of bonds if they yield 9%. Russia agrees. Person sends Russia a lump sum of money, Russia in return sends him 9% of the lump sum for the next 30 years (or whatever the Russia bonds are 2,5,10 yr, etc). Back in July Russia issued bonds at 8.6%, now it costs them 9%.

You and I can borrow for 30 years at half that amount
 
#6
#6
Can someone explain this quote from the article "With the government budget surplus running at $23 billion in the first eight months of 2014, Russia refrained from borrowing because of the political premium in the market, where a large supply of new bonds could send borrowing costs still higher."

Why would the Russian government borrow anything when they have a budget surplus? Also, Russia's debt is only 13% of their GDP (compared to the US at over 100%) and they supposedly just found an oilfield the size of the gulf of Mexico in the arctic... why are their interest rates so high? Does this make any sense to anyone?
 
#7
#7
Their rates are high because nobody wants to loan them money. They want to borrow to establish "trust" w/ the market
 
#8
#8
VolsNSkinsFan said:
Yea so Russia issues bonds. Someone in the market says we will buy X amount of bonds if they yield 9%. Russia agrees. Person sends Russia a lump sum of money, Russia in return sends him 9% of the lump sum for the next 30 years (or whatever the Russia bonds are 2,5,10 yr, etc). Back in July Russia issued bonds at 8.6%, now it costs them 9%.

You and I can borrow for 30 years at half that amount
Click to expand...

Gotcha, thanks. :hi:
 
#11
#11
red butler said:
Can someone explain this quote from the article "With the government budget surplus running at $23 billion in the first eight months of 2014, Russia refrained from borrowing because of the political premium in the market, where a large supply of new bonds could send borrowing costs still higher."

Why would the Russian government borrow anything when they have a budget surplus? Also, Russia's debt is only 13% of their GDP (compared to the US at over 100%) and they supposedly just found an oilfield the size of the gulf of Mexico in the arctic... why are their interest rates so high? Does this make any sense to anyone?
Click to expand...

so Russia's GDP for 2013 was 2.097 Trillion dollars and if you apply the 23 billion to 2/3 of the 2.097 (8 months) (1.398 Trillion) it comes out to approx 1.64% of the GDP. not exactly a big 'bank account' to be sitting on. but it would be interesting to see how much they are taking out.

also that oil field isn't theirs, or at least not all of it. and even sitting on the most valuable commodity on the international market they need to have multiple things going for them.
 
#12
#12
and for VolsNskins, I looked up debt by country (wikipedia, i know i know) and all of the developed countries have a pretty harsh amount of debt, especially when broken down, how does this work? are we (the whole world) just to built on debt to ever stop and actually collect/pay off the debts? and where, if everybody really is in debt where does the money come from? It seems to me if one of the major countries, talking Brazil/Egypt/Spain level on up, were to stop allowing the system to continue the whole thing comes tumbling down.

*by my count 18 of the top 25 'in debt by amount' countries had a worst percentage of debt to GDP than us. another interesting tidbit.
 
Last edited:
#14
#14
red butler said:
Can someone explain this quote from the article "With the government budget surplus running at $23 billion in the first eight months of 2014, Russia refrained from borrowing because of the political premium in the market, where a large supply of new bonds could send borrowing costs still higher."

Why would the Russian government borrow anything when they have a budget surplus? Also, Russia's debt is only 13% of their GDP (compared to the US at over 100%) and they supposedly just found an oilfield the size of the gulf of Mexico in the arctic... why are their interest rates so high? Does this make any sense to anyone?
Click to expand...

Along with this...
Policy makers last intervened in May, bringing to $40 billion the amount Russia sold this year to counter an exodus from local assets that accelerated after President Vladimir Putin annexed UkraineÂ’s Crimea region in March. Russian companies are set to face dollar-funding stress as $35 billion of debt matures in December, while U.S. and European Union sanctions over the Ukraine conflict propel outflows, Morgan Stanley analysts wrote in a Sept. 26 note.
Click to expand...

If this debt is denominated in dollars, could the Russians be betting long on the ruble? In other words, if the Russians believe that they are near the bottom of the USD/Ruble exchange rate, once the ruble bounces back, they could repay the debt with fewer rubles? What are the chances that the ruble rebounds after the sanctions and nonsense are resolved/worked out in the beginning of the year? Today, the USD/RUB rate is 39, but a year ago, it was just above 31.
 
Last edited:
#16
#16
LouderVol said:
so Russia's GDP for 2013 was 2.097 Trillion dollars and if you apply the 23 billion to 2/3 of the 2.097 (8 months) (1.398 Trillion) it comes out to approx 1.64% of the GDP. not exactly a big 'bank account' to be sitting on. but it would be interesting to see how much they are taking out.

also that oil field isn't theirs, or at least not all of it. and even sitting on the most valuable commodity on the international market they need to have multiple things going for them.
Click to expand...

To me it's a big surplus when you compare it to our -$1 Trillion deficit in the same timeframe. Also at one point they owned almost $1 Trillion of our debt. On the whole it appears Russia is a more fiscally responsible country than most of the developed countries. I understand why they have to pay a premium for credit now due to sanctions, but I don't understand why they were paying 8% before. Heck, Spain and Japan are much bigger risks for default IMO and they still borrow at less than 1%. And when I say risk, I mean certain default.
 
#17
#17
red butler said:
To me it's a big surplus when you compare it to our -$1 Trillion deficit in the same timeframe. Also at one point they owned almost $1 Trillion of our debt. On the whole it appears Russia is a more fiscally responsible country than most of the developed countries. I understand why they have to pay a premium for credit now due to sanctions, but I don't understand why they were paying 8% before. Heck, Spain and Japan are much bigger risks for default IMO and they still borrow at less than 1%. And when I say risk, I mean certain default.
Click to expand...

They still have about $120 billion in US treasuries which is about 6% of GDP (According to LouderVol's data)...

LouderVol said:
so Russia's GDP for 2013 was 2.097 Trillion dollars...
Click to expand...

red butler said:
Also, Russia's debt is only 13% of their GDP...
Click to expand...

And if their debt is denominated in dollars, their treasury holdings would cover half of their debt without them having to dip into anything else.
 
#18
#18
Rasputin_Vol said:
It will all shake itself out in the end. Don't worry.
Click to expand...

lol.gif


Is that why the economic heavyweights banded together, to smooth over these bumps in the road?

No doubt India will bail Russia out.

lol.gif
 
#19
#19
Just looking over the top countries' holdings of US treasuries and I still giggle looking at Belgium sitting at 3rd (as of July 2014) with $350 billion in holdings. Just ridiculous...
 
#21
#21
LouderVol said:
If everybody really is in debt where does the money come from?
Click to expand...

I think I can answer some of this but somebody can correct me if I'm wrong. The money usually comes out of thin air. When a country needs to borrow money, they auction off treasuries. If there are no bids at the target interest rate, the central bank can issue credit to buy the treasury at the target rate. Keep in mind, the central bank doesn't put up any capital it's merely a transaction on their ledger. Similar to fractional reserve lending commercial banks use, the loan becomes an asset and the payment becomes a deposit liability.

Obviously it's a debt ponzi scheme. The countries have been paying the debt by issuing more treasuries. Theoretically the money can be issued to infinity as long as there's confidence in the system.
 
Last edited:
#22
#22
I should add to that... The downside to the system is the value of the currency is constantly being devalued due to the injection of additional money.
 
#24
#24
Rasputin_Vol said:
Really? Look at a map...

Try convincing Russia that anything in the Kara Sea isn't totally Russia's.
Click to expand...

ah :hi:, i thought you were talking about the ongoing debate with canada, greenland and a few other countries. Hadn't heard about this
 
#25
#25
Rasputin_Vol said:
Get your laughs in now...
Click to expand...

Yeah, I know. In the long run we're all dead anyway.

Meanwhile, if anyone had been investing money the last few years based on your global economic theories, they would have been out a lot of money.

Thank you very much.
 
New posts
You must log in or register to reply here.

VN Store



Back
Top