Which 1998 Russian financial crisis caused a major hedge-fund failure after Russia defaulted on domestic debt?

The 1998 Russian financial crisis caused a major hedge-fund failure after Russia defaulted on domestic debt.

Russia devalued the ruble and declared a moratorium on some foreign debt payments on August 17, 1998. The government faced falling oil revenues, weak tax collection, heavy borrowing, and pressure on its currency reserves. Investors rapidly lost confidence in Russian debt and financial institutions.

The crisis spread through global markets because highly leveraged investors had built interconnected positions. Long-Term Capital Management, a large U.S. hedge fund, suffered severe losses and was rescued through a private-sector arrangement organized with assistance from the Federal Reserve Bank of New York.

The episode demonstrated how a sovereign default in an emerging market could transmit stress through international banks and derivatives markets. It also became a warning about leverage and the possibility that apparently diversified portfolios could move together during panic.