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Russian Credit Risk Rises as Traders Bolster Defense Against Fed 

August 22, 2016

Vladimir Kuznetsov, Bloomberg

The cost of buying default insurance on Russian bonds rose for a fourth day as investors seek to protect themselves from losses triggered by speculation the U.S. Federal Reserve is preparing to raise interest rates.

Five-year credit default swaps rose three basis points to 233, the highest level since Aug. 3. The ruble declined 0.9 percent to 64.465 per dollar by 4:25 p.m. in Moscow as crude oil fell 2.7 percent to $49.51 per barrel in London trading.

Russian assets have been flooded with fund inflows from investors in developed markets looking to escape negative yields engineered by central banks to spur lending. A reversal of easy-money policies would undermine this demand and traders are on alert for indications by Fed Chair Janet Yellen that a rebounding U.S. economy warrants a rate increase when she speaks Friday at an annual symposium in Jackson Hole, Wyoming.

"So far investors’ expectations are quite comfortable for markets, but any hints the Fed is taking a tighter stance on monetary policy may trigger a correction," Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow, said by e-mail. Read more

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