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Floating-Rate Bonds Remain Popular in Russia's Debt Market in 2025
In the Russian debt market of 2025, financial organizations continue to show a strong interest in floating-rate bonds. This trend is driven by several key factors, providing protection against interest rate uncertainty and managing risk in the volatile economic environment.
High and Volatile Interest Rate Environment
The Bank of Russia has maintained a tight monetary policy with a relatively high key interest rate, recently reduced to 18% per annum but expected to average between 18.8% and 19.6% in 2025, with a gradual easing in 2026. Inflation remains elevated but is declining, creating conditions of interest rate uncertainty. Floating-rate bonds offer protection against rising or volatile interest rates because their coupons reset periodically based on a reference rate, reducing interest rate risk for holders compared to fixed-rate debt.
Tight Monetary Policy and Inflation Trends
Despite the recent rate cut, the Bank of Russia emphasizes maintaining tight monetary conditions to bring down inflation to target levels by 2026. The slow return to balanced economic growth and moderated inflation pressure incentivize investors to prefer floating-rate instruments, which can better adjust to changing monetary policy over time.
Limited Market Participants and Demand Dynamics
Russian government bonds are primarily purchased by domestic banks, which remain the main buyers in the Russian debt market amid international sanctions and limited access to foreign investors. Banks often favor floating-rate bonds as they align well with their liability structures and risk management frameworks given the interest rate volatility.
Sanctions and Market Restrictions
Ongoing sanctions limit new debt issuance and restrict foreign investors, leading to a debt market where domestic players dominate. Floating-rate instruments may be preferred in this context because they provide more flexibility and reduce refinancing risks associated with rigid fixed coupons during uncertain economic and geopolitical conditions.
Global Finance Trends in Floating Rate Instruments
Internationally, there is a growing appetite for floating-rate bonds referenced to benchmark rates like SOFR, as seen in major issuances by entities such as the World Bank. This global trend indirectly supports local market participants’ interest in floating-rate bonds.
One notable example is VEB.RF's three-year floating-rate bond issue, which reached a demand of 235 billion rubles, allowing the issuer to increase the issue volume. The current placement stands out because the bonds have a floating coupon, while most issuers have switched to placing debt securities with a fixed coupon.
The demand for VEB.RF's floating-rate bonds was driven by a significant drop in the income of fixed-coupon bonds. Treasurers of banks and state financial corporations prefer floaters because they have virtually no market risk and are insensitive to changes in the key rate. Issuers with a AAA rating are placing floaters with low margins, aiming to make such debt cheaper overall than fixed-coupon debt.
Among the buyers of VEB.RF's floating-rate bonds were state and private banks, asset managers, insurance and investment companies, as well as affluent private investors. This bond issue by VEB.RF is one of the largest deals on the domestic debt market in 2025.
In conclusion, the drivers for the continued interest in floating-rate bonds in the Russian debt market are the high, uncertain interest rate environment maintained by tight monetary policy amid falling but still elevated inflation, dominance of domestic banks as buyers under sanctions restricting foreign participation, and the inherent benefits of floating-rate bonds for managing interest rate and refinancing risks.
In the context of the Russian debt market in 2025, businesses and financial organizations are increasingly focusing on investing in floating-rate bonds to manage risk in the high and volatile interest rate environment. This trend is more attractive to banks, as they prefer these instruments because they align well with their liability structures and risk management frameworks given the interest rate volatility.
The ongoing sanctions and market restrictions limit new debt issuance and foreign investor participation, making the domestic debt market dominated by domestic banks. In this context, floating-rate instruments are preferred due to their flexibility and reduced refinancing risks associated with rigid fixed coupons during uncertain economic and geopolitical conditions.
