Russian Default & Ruble Crisis

Dated events

1. Aug. 13, 1998 · Russian stock, bond and currency markets collapse; trading briefly halted
   Russian share prices crashed and the cost of insuring Russian government debt soared as traders became convinced the government would soon run out of money. Foreign banks and funds that had lent heavily to Russia realized they might not get paid back, and began trying to sell anything connected to Russia or other developing countries. This set the stage for the formal default announcement four days later.
2. Aug. 17, 1998 · Russia devalues the ruble and defaults on its domestic debt
   The Russian government announced it would not pay back its short-term government bonds on time and stopped defending the ruble's exchange rate. This shocked investors worldwide because many large investment funds had borrowed heavily to bet on Russian bonds, and suddenly those bets were worthless. In the weeks that followed, investors rushed to buy U.S. government bonds as the safest place to park money, and borrowing costs for risky countries spiked everywhere.
3. Aug. 27, 1998 · Ruble slides as Russia halts currency trading again; world stocks fall
   The ruble fell sharply again as Russia's central bank halted currency trading and signaled it would not spend much more to prop it up, and stock markets around the world fell sharply. Investors who had lent money to other developing countries began pulling out, worried those governments might also fail to pay their debts. Banks and funds everywhere started scrambling to figure out how much money they could lose.
4. Sept. 23, 1998 · New York Fed brokers a $3.6 billion private rescue of LTCM by 14 firms
   The Federal Reserve organized a group of major banks to put $3.6 billion into LTCM, a giant investment fund that was on the verge of collapse. LTCM had made enormous borrowed bets on bonds around the world, and Russia's default made those bets go badly wrong, if the fund had failed suddenly, it could have dragged down the banks it owed money to. Over the following weeks, fear in financial markets began to ease as the rescue prevented a chain reaction of failures.
5. Oct. 15, 1998 · Fed cuts rates by a quarter point between scheduled meetings
   The U.S. Federal Reserve cut its key interest rate by 0.25 points in an unscheduled move, the second cut in three weeks. The central bank was worried that the panic spreading from Russia and the LTCM collapse was freezing up lending between banks and companies in the United States. The surprise action helped calm fears and stock prices began recovering in the weeks that followed.

Assets named in this scenario · 5

Oil · Crude Oil (WTI) FuturesGold · Gold FuturesiShares 20+ Year Treasury Bond ETFiShares MSCI Emerging Markets ETFSPDR S&P 500 ETF Trust