Russian finance ministry cancels OFZ bond auction as buyers boycott war budget

Russian Ministry of Finance had to cancel a planned OFZ bond auction maturing in 2030 after no buyers appeared, amid record increases in state military spending, reported The Moscow Times on September 30. The auction, intended to be the last debt issuance of the quarter, aimed to raise 1.264 trillion rubles ($15.1 billion) for the federal budget.

According to an official statement, the offering was canceled due to a lack of bids at satisfactory price levels. Financial analysts at T-Investments remarked that virtually nobody turned up for the OFZ auction. This marks the ministry's first full debt auction failure since July, when borrowing was temporarily halted due to a severe market sell-off.

The primary reason for the bond market sell-off and investor withdrawal was the Kremlin's significant upward revision of its 2027 defense spending projections, with military budget surging by nearly one-third to 17.1 trillion rubles ($202.5 billion). This, combined with funding for domestic security agencies, will consume over 40% of Russia's total federal budget.

Doubled 2026 deficit forecasts to a record 7.3 trillion rubles ($87.6 billion), requiring an additional 1 trillion rubles ($11.97 billion) in borrowing for the year and 7.7 trillion rubles ($92.2 billion) in sovereign debt for the next year. The massive borrowing has strained the domestic financial system, with the OFZ price index dropping to summer lows and long-term debt yields nearing 17%, the highest since the early 2000s.

To overcome weak investor demand, Russian authorities have relied on indirect balance-sheet expansion through the Central Bank of Russia, buying nearly 1 trillion rubles ($11.97 billion) in floating-rate bonds from commercial state banks, which in turn borrowed the same amount directly from the central bank. Analysts warn that if auctions continue to fail, the Kremlin will have to rely entirely on covert monetary printing with sovereign yields above 17%, effectively outbidding the civilian economy for capital.