Russia’s 1998 sovereign default helped trigger a global market panic and the rescue of Long-Term Capital Management.
On August 17, 1998, Russia devalued the ruble, suspended payments on some domestic debt, and expanded a moratorium on certain private external obligations. The announcement damaged confidence in emerging markets and in highly leveraged financial strategies. Investors sold risky assets worldwide and sought safer holdings, causing large movements in bond and currency markets.
Long-Term Capital Management, a major U.S. hedge fund, had built enormous positions using borrowed money. Its trades were disrupted by the sudden widening of credit spreads and the collapse of market liquidity. The Federal Reserve Bank of New York helped organize a private-sector rescue in September 1998, with major banks and investment firms providing capital. The episode demonstrated how leverage and interconnected markets could transmit a crisis far beyond the country where it began. Russia later stabilized after a sharp ruble depreciation and rising oil prices.