Government Risk Soars After Ruble Weakens

The cost of protecting against a default by Russia soared after the Central Bank increased the ruble's trading band and lifted its benchmark interest rate to stem record capital outflows.

Credit default swaps on government bonds jumped to 7.87 percent of the amount insured from 6.14 percent Tuesday, according to CMA DataVision prices. The yield on its 30-year dollar bonds increased to 10.77 percent from 9.1 percent, according to Bloomberg prices.

Russia joins Hungary, Iceland and Pakistan among a handful of central banks raising interest rates to stem currency losses.

"The current pressures have largely been provoked by the Central Bank itself, whose recent clumsy steps in the currency market triggered a new speculative attack on the ruble," analysts led by Alexei Moisseyev at Renaissance said in a report Wednesday.

The country has drained more than 20 percent of its currency reserves to stem a 15 percent slide in the ruble against the dollar since the start of August as investors withdrew about $147 billion, according to BNP Paribas data to Nov. 10.

Fitch Ratings and Standard & Poor's said they may downgrade the nation's debt because of the slide in reserves. The total at $484.7 billion remains more than double the combined international reserves of the eurozone nations.