Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 09 Oct 2025 by Evgeny Gavrilenkov

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The Russian market has been under strain due to rumors about the supply of long-range missiles to Ukraine. Earlier hopes for resolving the military conflict and expectations of a rapid key rate reduction were significant drivers in recent months. However, both now seem unfounded, leaving the market without any positive momentum. Consequently, the equity market is declining, and bond demand is shrinking. Geopolitical developments offer little optimism, and external pressures are likely to keep Russia's financial markets under constant strain. Additionally, fixed income investors are worried about a potential oversupply of OFZs in the primary market. The government has proposed amendments to the 2025 budget, projecting a larger federal budget deficit (increased to 2.6% of GDP from the previous 1.7%) due to underwhelming revenues. Consequently, borrowings will rise by R2.2 trillion, with total issuance in 4Q25 reaching R3.7 trillion (out of R7.0 trillion for the full year). It is anticipated that the State Duma will approve these amendments by the end of October, giving Minfin two months to implement the borrowing plan. Investors expect the government to start issuing floaters (for the first time this year), but it may first attempt to maximize borrowing through fixed-rate papers. However, demand may be limited, as many market participants have already acquired significant amounts of government bonds, anticipating substantial rate cuts. This could result in considerable pressure on the curve in the coming weeks. In the week ending October 6, inflation w-o-w reached 0.23%. Rosstat preliminarily assigned 0.20% to October, leaving the remainder for September. If this holds, ...