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Moody’s downgrades Russia’s credit ratings to junk

Yahoo Finance's Julie Hyman and Brian Sozzi discuss why Moody's downgraded Russia's credit ratings.

Video Transcript

JULIE HYMAN: So what's going on here in commodities, we have to take it on over to what we are seeing broadly in the markets, broadly, the effect on the Russian economy. Moody's downgrading Russia to junk is one of the things that's been happening in the past 24 hours. Fitch also downgraded Russia. This follows on S&P downgrading the nation last week, Brian. And you were going through that Moody's note. And, you know, for a credit rating agency, I suppose, it's relatively strong language.

BRIAN SOZZI: It is strong language, and it boils down to Moody's being very scared about Russia being able to meet its debt obligations. Very lengthy note, and it's not often that a Moody's note is going to make it to the top of our show. But here it is. You look at that comment. Moody's saying the significant concerns around Russia's willingness to service its debt are a reflection that Russia's institutional strength has very materially weakened, with increasing evidence that the executive faces few checks and balances here.

And Julie, this really comes after about a week and a half of the Russian economy turning into a slow motion train wreck. Well, it started with the sanctions. Then you've had large multinational companies pull out of this region. And HP told us this week, they're pulling out of Russia. American Express pulling out of Russia. Now this is the latest shoe to drop here, with Moody's essentially saying that debt from Russia is essentially worthless. Now what is the next shoe to drop? A little bit unclear at this point. But you could very easily see it is starting to build up and build up very fast.

JULIE HYMAN: Yeah, a couple of other examples of this as well, again, in the past 24 hours, MSCI, widely followed global indices, is taking Russian stocks out of its emerging market indices in particular. So we haven't seen the Russian market open at the beginning of the week. And obviously, it's difficult to even buy these stocks if one wanted to or trade them, even if one wanted to sell them. And so we are seeing, basically, a freezing of activity in Russian equities.

And speaking of which, "The Wall Street Journal" reporting this morning that firms like BlackRock are having trouble. You know, there are these global sanctions. There's this push to liquidate, for Western firms to liquidate their Russian holdings. But you can't liquidate them if the market is frozen. So this is causing all kinds of issues within the market, not just for Russian participants, but for other participants who are trying to exit those positions.

BRIAN SOZZI: And what-- you have been highlighting all week, Julie, this action in the banks. And the bank stocks are taking their lead from the move in treasuries and what Jerome Powell said this week about potential for only a 25 basis point rate hike in a couple of weeks.

But look for commentary from bank executives in a few weeks that will be out there, hitting the rounds, talking with analysts, talking to investors about potential charges in the first quarter because of their Russian exposures and various similar types investments that are not doing well because of those Russian exposures. That, in fact, could be the next shoe to drop here.