FX.co ★ Russian OFZ Yield Slumps to 15-Month Low

In August, the yield on Russia's 10-year OFZ bonds dropped to 13.5%, marking a 15-month low. This decline was attributed to expectations of reduced interest rates and improved prospects for a resolution to the ongoing conflict between Russia and Ukraine, which boosted bonds across various maturities. Notably, President Putin engaged in discussions with U.S. President Trump regarding potential terms for a ceasefire or an end to the conflict, prior to Trump's meetings with Ukrainian and EU leaders. This highlighted the U.S.'s proactive stance in facilitating peace negotiations. Concurrently, declining inflation and subdued growth forecasts reinforced arguments for the Bank of Russia to continue its rate-cutting strategy beyond the current 18%. Inflation decreased for the fourth consecutive month, reaching 8.8%—the lowest in nine months—aligning with the Central Bank of Russia's expectations for reduced inflation. Furthermore, both the International Monetary Fund (IMF) and the World Bank anticipate that the Russian economy will expand by less than 1.5% this year, marking the slowest growth since 2016, excluding disruptions from the pandemic and the ongoing conflict.