Russia recession worries rattle bond markets

Andrey Rudakov | Bloomberg | Getty Images

Russian bond yields and the cost of insuring the country against default rose on Wednesday, as investors fretted over intensifying sanctions, the prospect of a recession and falling oil prices.

Russia's benchmark 10-year domestic ruble bond rose 14 basis points to 10.9 percent during Wednesday. Meanwhile the cost of insuring Russia's five year debt against default—a measure of perceived risk in a country—hit a five-year high of 354.4 basis points, according to data provided by Thomson Reuters. This means that investors with $10 million of Russian debt would have to pay $354,400 a year to protect it.

Moscow is facing a double economic hit from falling oil prices and from sanctions imposed by the West for its incursion in Ukraine this year.

Read More'Double trouble' for Russia; outlook 'darkens'

Risk of corporate debt defaults in Russia: Pro
Risk of corporate debt defaults in Russia: Pro   

The Russian economy ministry now believes that the country will enter recession next year, predicting that gross domestic product (GDP) will shrink 0.8 percent in 2015, revising an earlier forecast of 1.2 percent growth. The Central bank had previously forecast zero growth in 2014.

The Russian ruble has already been hit hard, and has fallen a staggering 60 percent against the U.S. dollar since the start of 2014.

Read MoreRussia ready to defend ruble as rocky ride continues

Now, investor concerns are infiltrating other asset classes.

"This is a classic case of selling the wrong thing when you missed the boat to sell all the other stuff earlier," Alex Turnbull, chief investment officer of hedge fund Keshik Capital, told Dow Jones, referring to the selloff in 2030 Russian bonds.

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Thus far, Russian stocks have stayed safe from the rout. The country's MICEX index has gained steadily since mid-October and is around 6 percent higher since the start of the year.

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