FX.co ★ Russian 10-Year Yield Pulls Back

The yield on Russia's 10-year OFZ (Federal Loan Bonds) has decreased to 14.6%, down from a recent peak of 15.2% in late October. This decline is attributed to increased taxation and a recovery in oil prices, which has tempered the effects of an expanding OFZ supply. In response to the substantial federal spending due to the conflict in Ukraine, the Kremlin has announced an increase in the value-added tax (VAT) for the upcoming fiscal year, aiming to raise an additional RUB 1.2 trillion in revenue. Concurrently, government revenue prospects have been bolstered by rising crude oil prices, supported by OPEC+ members' decision to halt planned output increases for the following year. These factors momentarily alleviated the worsening financial situation in Russia, although economic expansion remains sluggish, prompting the government to announce a 46% increase in borrowing for this year. Furthermore, OFZs face pressure from the Bank of Russia's elevated interest rates as it contends with persistent inflation, maintaining the benchmark rate at 16.5%. The central bank has refrained from signaling another rate cut this year, citing potential inflationary pressures.