What the markets giveth, they also taketh away. A period of relative calm in Russian and Ukrainian markets ended abruptly today, amid a worrying escalation of tensions in eastern Ukraine. For investors, it never pays to be complacent, especially in this combustible corner of the world.
As the US, EU, and IMF rushed through aid packages, trade agreements, and other measures to support Ukraine’s teetering economy, its financial markets had began to show faint signs of life. But Moody’s cut the country’s credit rating deep into “junk” territory at the end of last week, citing fears of unpaid gas debts, political turmoil, and a host of other ills.
Bond investors spent the day dumping Ukrainian bonds, reversing some of the gains made in previous weeks. But yields (which move inversely to prices) aren’t yet signaling that the situation is as bad as it was in the run-up to the referendum on Crimea joining Russia. Still, the one-day spike today in Ukraine’s 10-year dollar bond was one of the largest since the conflict with Russia began.
Things aren’t much better over in Moscow—the Micex stock index recorded its biggest one-day drop in a month. Key companies at the center of the dispute with Ukraine, including state-controlled gas giant Gazprom, suffered steep declines. As in Ukraine, however, these securities aren’t yet plumbing the depths recorded a month ago, just before Crimea’s referendum.
To round out the tour of today’s market rout, the ruble also lost ground against the dollar. If today marks the start of another steady slide in the currency, Russia’s central bank may need to dip into its reserves more aggressively. It has already spent nearly $42 billion so far this year propping up the ruble.
The conclusion, if any can be drawn from one bad day on the markets, is that investors aren’t yet on the “war footing” last seen when Russian troops surfaced in Crimea. But with pro-Russia activists seizing parliaments in eastern Ukraine and calling for Moscow to send “peacekeepers,” that day may be drawing closer, and the jitters are starting to show.