FX.co ★ Russian Yields Rise to 3-Month High

The yield on Russia's 10-year OFZ bonds has neared 15%, marking the highest level in three months. This increase can be attributed to the Ministry of Finance expanding its bond issuance and the Bank of Russia hiking interest rates. The proposed budget for the coming year designates RUB 13 trillion, which accounts for 40% of the federal budget, towards defense spending as Russia continues its conflict with Ukraine. This allocation surpasses earlier estimates and suggests a continuation of substantial federal government expenditure. Simultaneously, there are notable concerns regarding government revenue, driven by the country's sluggish economic performance, depressed prices for Russian commodities because of a strong ruble, and the elevated interest rates enforced by the central bank, all leading to projections of increased government bond issuance. As of October, the price of Urals oil remained below $65 per barrel, and LNG prices were subdued due to robust supply from the US and significant stockpiles in Europe. In terms of monetary policy, the Central Bank of Russia reduced its interest rate to 17%, amid expectations for a cut to 16%, but remained cautious against further aggressive cuts due to potential inflation risks.