The Russian Ministry of Finance has suspended the issuance of OFPs due to the high cost of borrowing
The Russian Ministry of Finance has suspended auctions for the placement of federal government bonds for an indefinite period. Formally, the decision is explained by the need to stabilise the market; however, the high cost of government borrowing is cited as the main reason.
The Russian Ministry of Finance has suspended auctions for the placement of federal loan bonds (abbreviated as OFZ) for an indefinite period. Officially, this is to stabilise the market. To put it simply, this instrument is similar to our OVDPs.
I would like to briefly explain the reasons behind this move and what to expect next.
The main reason for suspending the auctions is the high cost of borrowing. The market had expected a more rapid cut in the key policy rate, but in June the Russian Central Bank reduced it by only 0.25 percentage points – to 14.25 per cent. Meanwhile, demand for OFZs at prices acceptable to the Ministry of Finance was insufficient. Investors were prepared to buy bonds at a lower price and, consequently, with a higher yield, which made new borrowing more expensive for Russia. At the first auction of the third quarter, on 1 July, the Russian Ministry of Finance placed OFZs worth just 10.4 billion roubles – the worst result since August 2025. Subsequent placements did not take place.
Let’s be realistic: the suspension of auctions may even temporarily support the Russian financial market. After all, the absence of new supply reduces pressure on bond prices. At the same time, once the situation has stabilised, the Russian Ministry of Finance may resume OFZ placements.
However, a prolonged pause will complicate the financing of the budget, whose deficit for the first half of the year has already reached 5.73 trillion roubles (compared with around 3.5 trillion a year earlier). If market conditions for OFZs do not improve, the consequences for the Kremlin could include a further rise in the cost of new debt obligations, as well as more active use of budget surpluses and other domestic sources of funding. The pause does not reduce the need to finance the deficit – it merely postpones new market borrowing or forces a search for alternatives.
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