commentary from Custom House
Russian Debt Downgrade
Perhaps the most significant news out of Europe this morning was the Fitch downgrade of Russia's long-term foreign and local currency Issuer Default rating to BBB status. Russia and other eastern European countries have been hit by massive outflows of investment funds of late, and the downgrade will likely add to their problems. Russian debt is now just barely above minimum investment grade status (BBB-), and the government is being forced to sell its foreign reserves to protect the currency and absorb excess rubles from capital outflows. The Russian ruble has fallen 34% since last July, while the central bank's foreign reserves have plunged from $386 billion down to $210 billion. As Russia and other eastern European central banks hold much of their reserves in euros, of course, the euro itself has been under a significant amount of pressure, this morning falling about 150 basis points.
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