In 1998, it was the government's debt default that caused market declines. This time, it is Russia's fledgling corporate bond market that is to blame, according to the newspaper.

Despite continuing economic growth in Russia, corporate bond prices have fallen hard. Corporate bond selling is not expected to generate another global meltdown. Still, it is part of a broader sell-off in emerging market bonds that has pounded Brazilian, Turkish and other speculative debt. The losses and lack of trading liquidity in Russian corporate debt are causing headaches for hedge funds and banks' proprietary trading desks in the US and London, and for Russia's small and midsize banks that own this debt. Many of these investors borrowed money to take bigger positions in Russian corporate bonds, the Wall Street Journal says.

Looking at Russia’s shiny economic facade, many investors forgot that the country’s corporate debt issues are often high-yielding but risky. Unlike the Russian government, which received assistance from the International Monetary Fund, Russian companies will not receive any international bailout packages if they have trouble meeting their interest payments.

The recent turmoil is a test for many corporate bond investors in Russia. Since the market is so new, many investors have not experienced a period of rising interest rates. This is leading them to seek shorter maturity bonds at a time when Russian issuers are hoping to sell longer-maturity bonds in an effort to lock in low rates. It is a hard time for Russian investors, who will need some time to adjust, the Wall Street Journal concludes.

According to analysts, the RTS index has lost about 25 percent over the past month, returning to the level at the beginning of 2004. The Russian market faced similar problems in July and October 2003, when the RTS index dropped 17 percent in two weeks and 22 percent in three weeks, respectively.

In late April, there were rumors about the possible arrest of Mikhail Potanin, head of Norilsk Nickel, and a shaky position of Anatoly Chubais in RAO Unified Energy Systems of Russia, which had a negative impact on the market. However, the main reason behind the market decline in April-May was an expected rise in US interest rates and, as a result, the strengthening of the dollar.