The yield on the 10-year OFZ bond rose to 10.1% in November, the highest in two weeks, as investors digested the country’s credit risk after the federal government changed the budget law to account for increased military spending. The amendment signed by President Putin allocated RUB 8 trillion from higher taxes in oil and gas revenues for 2023-25, in line with estimates that assume the ruble should hold between 65-75 per USD, but raising concerns of stable financing depending on the rigidity of energy embargos by the West. The budget assumes a deficit of 2% of GDP in 2023 and 1.4% in 2024, wiping out the strong surplus position observed in the first three quarters of 2022. The document also assumed RUB 2.9 trillion to be used from Russia’s rainy-day National Welfare Fund, an unprecedented move that underscores the unsustainability of higher spending. Lastly, yields were supported by increased OFZ auctions for further fiscal support ahead of the start of the EU’s oil embargo.
Historically, the Russia Government Bond 10Y reached an all time high of 19.89 in March of 2022. Russia Government Bond 10Y - data, forecasts, historical chart - was last updated on December of 2022.
The Russia Government Bond 10Y is expected to trade at 10.42 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 11.33 in 12 months time.