A Russian sovereign debt default, now given at 80% probability by Fitch (based on CDS values), can trigger a meltdown of the international (western) financial system. If driven into a corner, Russia could use it as a debt-bomb detonator.
Take the case of Pimco, one of the world’s largest investment managers. Pimco actively manages more than $2.21 trillion in assets for central banks, sovereign wealth funds, pension funds, corporations, foundations and endowments, and individual investors around the world.
Pimco is exposed both as owner of Russian bonds as well as a counterparty in credit default swaps (CDS) contracts. Precisely, it owns more than $1.5 billion in Russian Federation bonds and at least $1 billion in derivative bets that the country would not default.
If Russia defaults, Pimco will directly lose at least over $2.5 billion, but it could suffer a wave of margin calls and investors’ flight.
