Long-term OFZ yields rise to 16.04 percent as ruble weakens
Russian monetary conditions remained moderately tight in August as the policy rate held at 14.00 percent. The RUONIA money market benchmark fell 51 basis points to 13.80 percent, while long-term government bond yields rose toward the end of the month.
Steeper curve and money market easing
The Bank of Russia maintained its key rate at 14.00 percent throughout August following a 25bp cut in July.
The overnight RUONIA rate averaged 13.80 percent, down 51bp from July, pushing the spread against the key rate to minus 20bp.
While average government bond yields fell 9bp to 46bp across tenors in monthly terms, the OFZ curve steepened sharply late in the month.
The 10-year OFZ yield rose 35bp to 16.04 percent on August 31, expanding the 10Y–2Y spread from 111bp to 159bp.
Corporate bond yields averaged 15.43 percent under the IFX-Cbonds index, with primary corporate issuance recovering to 894 billion rubles from 654 billion rubles in July as non-bank demand increased.
Currency slide and liquidity drain
Ruble depreciation added upward pressure on long yields, with the currency weakening 6.8 percent against the US dollar and 8.4 percent against the euro in August.
The banking sector structural liquidity deficit widened by 0.3 trillion rubles to 2.6 trillion rubles, driven by seasonal demand for cash.
Meanwhile, broad money growth (M2X) slowed to 12.6 percent year-on-year in July and a preliminary 12.4 percent in August.
Long-term bank lending to households increased to 18.9 percent, while corporate loan rates held at 12.9 percent.
Friction along the transmission curve
A steepening yield curve shows markets doubt medium-term disinflation despite flat policy rates.
Ruble weakness and expanding liquidity deficits continue to strain the transmission mechanism.
Without tighter fiscal coordination, rate policy alone cannot anchor long-term inflation risk.