RUSSIAN Bonds Collapse

Video Summary

Russia’s Economy in Crisis: The Struggle to Raise Bonds

Russia, once a thriving economy, is now facing a severe crisis. The country’s reliance on bonds to fund its expenditures, particularly since the invasion of Ukraine, has led to a significant struggle to raise capital. Despite high interest rates, which have increased to 19%, foreign investors are shunning Russian bonds, and even domestic investors are reducing their demand. This issuing shortage has sent alarm bells ringing, with investors questioning Russia’s ability to repay its debt.

The Russian government’s increasing reliance on central bank funding has fueled the crisis, with interest rates at emergency levels. The country’s inflation rate, at 9%, is double the target rate, and inflation is showing no signs of slowing. The war has driven up wages, and imports are limited due to Western sanctions, exacerbating the problem.

The Russian Central Bank has raised interest rates seven times in the past 14 months, but it’s too late for many investors. The yield on Russian bonds, previously seen as attractive, is now seen as a risk, and investors are shunning the bonds. The data suggests that Russia will only be able to raise a small fraction of its planned debt in the second quarter of 2024.

The consequences are dire: Russia may need to dip into its already dwindling reserves, which could accelerate the country’s economic collapse. The situation is a stark reminder of the consequences of relying too heavily on a single tool, such as bond issuance, and the importance of economic fundamentals. As the economy continues to struggle, it’s unlikely that Russia will be able to recover anytime soon from this crisis.

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