Russia cancels sovereign bond auction as deficit projection rises to 7.3 trillion rubles

Failed bond auction

The Russian Ministry of Finance declared an auction of federal treasury bonds (OFZ) maturing in 2030 void on Wednesday, 30 September 2026. In an official statement, the ministry said the offering concluded unsuccessfully due to a lack of bids at acceptable prices. The cancellation concluded the third quarter borrowing calendar, during which the Russian treasury aimed to raise 1.5 trillion rubles but secured 1.264 trillion rubles, slightly over 80% of its quarterly plan. The failed sale marked the first aborted sovereign debt auction since July 2026, when falling secondary market prices previously forced a suspension of state bond issuance. In preceding weeks, the government had scheduled sales of 139.6 billion rubles and 150 billion rubles across two debt series.

Analysts at brokerage T-Investments described the empty order books following the canceled offering:

Nobody came to the bond auction.

Surging deficit and military spending

Debt market sentiment deteriorated after the Russian government revealed substantial revisions to its medium-term fiscal targets. The Ministry of Finance raised its budget deficit forecast for 2026 to 7.3 trillion rubles, more than doubling the initial projection of 3.6 trillion rubles. To cover this fiscal gap, authorities plan to borrow an additional 1 trillion rubles before the end of the year. For next year, the government intends to sell 7.7 trillion rubles in government bonds alongside higher corporate windfall profit taxes and new levies, administrative fines, and fees on citizens. Military expenditures for next year are projected to expand by roughly one third to 17.1 trillion rubles, which together with broader security and enforcement spending will consume more than 40% of the national budget.

Yields reach long-term highs

The expansion in planned state borrowing placed immediate downward pressure on government paper. Analysts at Raiffeisenbank noted that public debt investors were disappointed by the revised budget frameworks for both this year and next year. On the Moscow Exchange, the sovereign bond price index dropped to a summer low of 111.2 points. Yields on long-term government bonds approached 17%, reaching the highest annual borrowing rate the Russian state has faced on new debt since the start of the 21st century. Investors sought higher yields to compensate for rising risks, which the Finance Ministry proved unwilling to accept during the auction.

Central bank financing mechanisms

With demand for standard fixed-coupon debt weakening, the Finance Ministry faces pressure to issue more floating-rate bonds, known as floaters, whose coupons adjust with market rates. While floaters offer lower interest risk for commercial purchasers, they shift debt-servicing risks entirely onto the state budget when benchmark interest rates remain high. In early September 2026, domestic commercial banks purchased nearly 1 trillion rubles of floating-rate notes and borrowed an almost identical sum from the Bank of Russia on the same day. Banks then pledged the newly acquired OFZ bonds back to the central bank as collateral for that financing. Economist Vladislav Inozemtsev described this circular mechanism as a coordinated game and a pure emission operation that functions as indirect central bank deficit financing.