• Thursday, June 13, 2024
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Russia’s credit rating reduced to ‘Junk’ as sanctions further increase financial risk

Russia’s credit rating reduced to ‘Junk’ as sanctions further increase financial risk

S&P late on Friday said that it would reduce Russia’s rating from triple-B minus to double-B positive.

This cut would reduce Russia’s rating to ‘Junk’ status seeing that Western sanctions are already dealing a severe blow to the country’s financial markets.

S&P’s decision strips Russia of its investment-grade standing at one of the main three rating agencies, pushing Moscow into a league of riskier countries that typically pay higher borrowing costs.

The move came as Russia’s invasion of Ukraine triggered a string of downgrades from the big agencies, with Fitch Ratings lowering Ukraine’s credit rating and Moody’s Investors Service warning that both countries could face cuts.

The S&P stated that it could reduce Russia’s rating further over the next three months once its analysts have “more clarity on the full macroeconomic repercussions of the existing sanctions and the evolution of the geopolitical conflict”. The agency also lowered Ukraine’s rating to B minus from B.

Moody’s also late on Friday said it had placed Russia’s credit rating on review for a downgrade, prompted by a “significant further elevation of the geopolitical risks”. Russia still holds an investment-grade status both with Moody’s and Fitch.

Read also: UN General Assembly adopts resolution to end Russian military operation in Ukraine

Russia’s financial markets were roiled this week after Vladimir Putin ordered a full-scale invasion of Ukraine. The country’s stock market shed a third of its value in US dollar terms, marking the worst week on record, according to Refintiv data.

In another sign of the severe financial consequences of Russia’s attack on Ukraine, the cost to protect against the risks of holding Russian debt has soared. The spread on five-year credit default swaps rose above 900 basis points on Thursday, a historic high, before ending the week at around 500bp. It started this year around 120bp.

Fitch also lowered Ukraine’s rating from B to triple-C on Friday, close to the bottom of its rating scale, saying the invasion has resulted in heightened risks to Ukraine’s external and public finances, macro-financial stability and political stability.

Ukraine’s government debt has also tumbled, as the invasion fans fears that Kyiv will default on its debt. Ukrainian dollar bonds ended the week with prices below 50 cents on the dollar, a level that indicates investors are pricing in a high probability of not being repaid in full.