Thanks to the rouble crisis, Moscow bonds look a snip even compared with the Russian Federation's. Isabelle Terrillon, director of emerging markets at Nomura International in London, says: "When people started panic-selling, they off-loaded more of the non-sovereigns than the sovereigns. As a result, non-sovereign bonds have tended to be cheaper, even if they involve the same risk." The outcome is a spectacular piece of irrational valuation. At the close of trading on September 29, Russia's 9.25% dollar bond, maturing in 2001, was yielding 5,350 basis points over US treasuries. Moscow's 9.5% dollar bond, maturing in May 2000, was yielding 12,367 bp over. But as Terrillon notes: "You are not living in normal markets at the moment."
In fact, Moscow may turn out to be a better risk than the sovereign. It appears capable of continuing to service its debts even with the central state in default. Moscow is somewhere between a conglomerate and a state within a state. It has its own sources of dollar revenue. It owns stakes in numerous major companies. It rents real estate to multinationals. The city's own Bank of Moscow is thought to be less exposed than many banks to the collapse of the GKO market.