The yield on Russia's 10-year OFZ bonds has receded to 14.6%, having previously surged to a four-month high of 15.2% earlier in October. This change comes as Russian assets receive some support from recent geopolitical developments. Notably, U.S. President Trump highlighted that Ukrainian President Zelensky should consider more advantageous terms to resolve the ongoing conflict with Russia. Meanwhile, EU leaders encountered challenges in their efforts to utilize frozen Russian assets to aid Ukraine. These developments have provided some relief to OFZs following a downturn in Russian debt that began in August, prompted by an increase in bond supply and rising interest rates.
In relation to next year's fiscal plan, the draft budget has earmarked RUB 13 trillion for defense, representing 40% of the federal budget. This allocation, aimed at sustaining heightened levels of government spending due to Russia's conflict with Ukraine, exceeds initial projections. However, this significant defense expenditure is set against a backdrop of potential risks to government revenue. These include a sluggish Russian economy, subdued commodity prices alongside a robust ruble, and elevated interest rates imposed by the central bank.
