Which 1998 default caused a sharp global market shock before the collapse of Long-Term Capital Management?

Russia’s sovereign default caused a sharp global market shock before the collapse of Long-Term Capital Management.

In August 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments, and restructured domestic debt. The move followed years of fiscal pressure, weak tax collection, low commodity prices, and political instability. Investors who had treated Russian government debt as relatively attractive faced sudden losses.

The default intensified global risk aversion. Emerging-market currencies and bonds weakened, and investors rushed toward safer assets. Long-Term Capital Management, a highly leveraged hedge fund with large positions in converging interest-rate and credit markets, suffered heavy losses soon afterward.

Russia’s actions were not identical to a complete repudiation of every obligation. The crisis involved a devaluation, a domestic debt moratorium, and restructuring, with different treatment for different classes of creditors. That distinction is often lost in simplified accounts of the episode.