Debt Market Bulletin

Debt Market Bulletin

Issue VI: results of 2024

ACRA presents the sixth issue of its Debt Market Bulletin, which describes the current situation and trends in Russia’s fixed income and public debt market.

• As of December 31, 2024, the total volume of the Russian bond market by outstanding nominal value amounted to RUB 53.1 tln, which is 19.2% higher than the figure at the end of 2023. The main driver of growth was the corporate bond segment, which added 24% over the year. ACRA expects the activity of corporate bond issuers to remain approximately at the current level in 2025 in the context of the Bank of Russia maintaining a tight monetary policy and increasing liquidity flow to the government bond market.

• By the end of 2024, yields on government and corporate bonds had increased significantly and reached their highest levels since March 2022 amid the tightening of monetary policy by the Bank of Russia due to increased inflationary pressure. ACRA also notes a significant widening of spreads between bond yields for issuers of different credit rating tiers.

• At the end of 2024, yields on government bonds increased significantly in all sections of the Russian Government Bond (OFZ) curve, while by the end of the year, the inversion of the curve noticeably increased due to the outpacing growth of yields on short-term bonds with a decrease in yields on long-term bonds. In general, the dynamics of government bond yields may indicate that market participants generally do not expect further tightening of monetary policy in the medium term.

• The Russian digital financial asset (DFA) market exceeded RUB 150 bln last year, demonstrating more than fourfold growth. In ACRA’s opinion, DFA instruments have significant potential for further development, given the features of hybrid DFAs and the prospects for using these instruments for international settlements.

• Since the start of 2024, there has been an increase in defaults on bonds, but the default rate remains low (less than 0.1% of the total volume by outstanding nominal value), which indicates the limited impact of interest rate growth on the financial stability of issuers last year. ACRA expects some increase in the number of defaults in the corporate bond market in 2025, taking into account the tight monetary policy of the Bank of Russia. However, given the adaptation of issuers to high interest rates against the backdrop of a general increase in the money supply, the Agency believes that it is unlikely that the increase in the number of defaults will be significant on the scale of the entire corporate debt market.

Current state of the debt market

In 2024, the total volume of the Russian bond market in nominal terms amounted to around RUB 55 tln. The volume of the market in terms of outstanding nominal value as of December 31, 2024 was estimated at RUB 53.1 tln, which is 19.2% higher than the indicator recorded at the end of 2023. This growth was primarily driven by the corporate bond segment, which grew by RUB 5.7 tln (+24% year-on-year). In total, new bond issues worth approximately RUB 8.9 tln were placed in the corporate segment in 2024, which is 19% more than placements made last year and is a record.

OFZs accounted for most of the growth in the ruble-denominated public debt segment. In 2024, the Russian Ministry of Finance placed new bonds worth around RUB 4.3 tln, with placements in December amounting to around half (RUB 2.1 tln) of all placements in the year. Throughout last year, the Ministry of Finance had difficulty placing new bonds due to the unfavorable price situation in the OFZ market (market participants were not willing to buy the ministry’s new bonds without an additional premium). In particular, in Q2 and Q3, around half of the planned volume of new OFZs was placed. The planned volume of OFZ placement is RUB 1 tln for the first quarter of this year.

In the corporate bond segment, non-financial companies were the most active in growing debt in 2024 (Table 1), having increased their total borrowings (at outstanding nominal value) by RUB 3.1 tln or 20% year-on-year. In addition, over the past 12 months the volume of debt for bonds of development institutions and government agencies (+28%) and other financial institutions (+51%) has increased significantly in relative terms.

Table 1. Bond market structure by outstanding nominal value, RUB bln

The Agency notes that even in conditions of tight monetary policy, the growth of total corporate debt at outstanding nominal value for 2024 only slowed slightly compared to the previous year (+24% vs. growth of 25% in 2023). However, ACRA expects a further slowdown in the growth of the Russian corporate bond market taking into account the significant volumes of planned repayments this year (amounting to more than RUB 3.5 tln) and a continuing tight monetary policy.

In 2024, the volume of placements of new corporate bond issues amounted to around RUB 8.9 tln, with more than a third (35%) of these issuances made by financial institutions, mainly banks and mortgage agents. Oil and gas sector companies, development institutions and government bodies were also highly active (Fig. 1).

Figure 1. Industries of new issuers in 2024

Sources: Cbonds, ACRA

As of December 31, 2024, the lion’s share of corporate bonds in circulation (RUB 16.3 tln or around 55% of the market) continued to be debt obligations of first-tier issuers: 55 companies with the highest credit rating, AAA under the national scale for the Russian Federation. A year earlier, first-tier issuers accounted for around 52% of the market. Bonds of second-tier issuers (companies with ratings from AA+ to A-) occupied 22% of the market as of the end of 2024, while issuers from the high-risk segment (rated BBB+ and lower) accounted for less than 3%. The share of issuers without credit ratings stood at around 20% of the corporate bond market. Bonds of mortgage agents (who do not have credit ratings) occupied 6% of the market, while the share of other companies without credit ratings was 14%.

In quantitative terms, the first tier accounted for about 8% of the total number of corporate bond issuers, while the second tier accounted for 21%. At the same time, the total share of third-tier and other issuers without credit ratings (excluding mortgage agents) accounted for almost 70% of all corporate borrowers (amid a total market share of less than 17%), which indicates that these market participants offer much more modest bond issues. The structure of the corporate debt market by level of credit risk as of the end of 2024 is given in Fig. 2–3.

⁴ Credit ratings assigned by one of the four credit rating agencies registered by the Bank of Russia
⁵ Mortgage agents without credit ratings
Sources: Cbonds, ACRA

Despite the continued increase in interest rates caused, among other things, by the key rate hikes, borrowing activity increased in 2024 compared to 2023 across all risk groups except unrated issuers whose borrowing activity decreased (Fig. 4). At the same time, the total volume of new corporate bond issues in 2024 exceeded the figure of the previous year by 19%. First-tier (+35%) and third-tier (+33%) issuers were the most active in increasing bond issue volumes, while second-tier issuers showed growth of only 16%. There was almost no difference in coupon rates offered by companies with the highest credit rating (AAA) and AA-rated companies (Fig. 5). At the same time, higher rates on bonds issued by AA–AAA-rated companies compared to A-rated companies (Fig. 5) are mainly explained by issuance periods. A-rated companies issued about half of their bond volume in H1 2024 when the key rate of the Bank of Russia had not yet begun to rise, while AA–AAA-rated companies issued only 32% in this period and the bulk of their issues occurred during the period of sharp growth of the key rate in H2 2024, which affected the yields. Note also that as shown in Fig. 5, the price advantage of A-rated companies over AA–AAA-rated companies reflects the fact that the share of floating coupon bonds issued by companies of higher rating categories is significant, while A-rated companies preferred to issue bonds with lower fixed coupon rates for a three-year period.

⁶ Weighted average coupon rate for 3-year corporate bonds issued in the analyzed period. The sample only includes market exchange-traded issues, including non-financial companies, banks, and other financial institutions.
Sources: Cbonds, ACRA

After relative stabilization in H1 2024, yields on the ruble-denominated corporate bond market began to grow rapidly again amid key rate hikes by the Bank of Russia and growing inflationary pressure. By the end of December, the yield indices for the first tier⁷ increased by 694 bps relative to the average values of the first half of the year, for the second tier⁸ they grew by 937 bps, for the third tier9 they grew by 1,122 bps. ACRA notes the broadening of spreads between issuers of different credit rating tiers, which became noticeable by the end of last year against the background of a sharp increase in yields (Fig. 6). At the same time, the values of these yield indices exceeded the record levels of March 2022, which were followed by an easing of monetary policy by the Bank of Russia.

7 The Cbonds CBI RU Top Market Investable YTM was used to determine tier 1 yields.
8 The Cbonds CBI RU Middle Market Investable YTM was used to determine tier 2 yields.
9 The Cbonds-CBI RU High Yield YTM was used to determine tier 3 yields.

In 2024, government bond yields grew significantly in all parts of the Russian Government bond zero coupon yield curve (Fig. 7). In addition, the inversion of the G-curve increased markedly by the end of the year due to the outstripping growth in short-term bond yields and declining yields at the long end of the curve. At the same time, the spreads between the key rate and OFZ yields were negative. In general, the dynamics of government bond yields may indicate that market participants mostly do not expect further tightening of monetary policy in the medium term.

By the end of 2024, the Russian DFA market exceeded RUB 150 bln, demonstrating more than fourfold growth (at the beginning of last year, the market volume was estimated at approximately RUB 34 bln). This growth was facilitated by a significant increase in the number of new issues in the second half of the year (410 placements took place in Q4, compared to 88 in Q1). In 2024, DFA issuers were both financial institutions and non-financial companies (including SMEs), with banks accounting for more than half of new issues. The further growth of the DFA market will largely depend on regulatory and legislative changes. In ACRA’s opinion, DFA instruments have significant potential for development, given the features of hybrid DFAs and the prospects for using these instruments for international settlements. The potential creation of the BRICS PAY payment system, the goals of which largely coincide with the development trend of Russian DFAs, gives particular relevance to the development of international settlements using DFAs.

Credit risks of issuers

Since the beginning of 2024, the Russian corporate debt market has seen defaults on the bonds of QIWI Finance LLC, KrialEnergoStroi Plant LLC (KES Plant LLC), Nika LLC, Fabrika FAVORIT LLC, and Rosgeologia JSC. QIWI Finance LLC defaulted due to the revocation of the license of QIWI Bank (JSC), while KES Plant LLC and Fabrika FAVORIT LLC defaulted after their banking operations were suspended by the Federal Tax Service of Russia. The default of Rosgeologia JSC increased the attention of bond market participants to assessing the risks of government-owned issuers dependent on government support. ACRA notes that in the context of the tight monetary policy pursued by the Bank of Russia, the risks of refinancing previously-issued liabilities remain generally elevated for companies with low liquidity and debt coverage metrics. The total volume of corporate bonds that defaulted in 2024 amounted to about RUB 16 bln (including RUB 8.2 bln for QIWI Finance LLC and RUB 6 bln for Rosgeologia JSC). On the other hand, the overall default rate remains very low (less than 0.1% of the total outstanding nominal value of corporate bonds at the beginning of last year), which indicates a limited impact of rising interest rates on the financial stability of issuers during the last reporting periods. ACRA expects a slight increase in the number of defaults in the bond market in 2025 amid the Bank of Russia’s tight monetary policy. At the same time, taking into account the adaptation of issuers to high interest rates and the increase in the ruble money supply (according to the Bank of Russia, the growth rate of the M2 monetary aggregate was 19.5% in annual terms at the end of December last year), the increase in the number of defaults will not be significant compared to the volume of the corporate debt market.

The total volume of repayments of corporate bonds and DFAs scheduled for 2025 is about RUB 3.5 tln (excluding repayments under options), which is 10% higher than last year. Almost half of the repayments (about RUB 1.6 tln) falls on the fourth quarter (Fig. 8). ACRA expects activity from corporate bond issuers to remain around the current level on the backdrop of the Bank of Russia’s persistently tight monetary policy and the growing flow of liquidity to the government bond market.

Figure 8. Upcoming repayments of corporate bonds in 2025, RUB bln

Sources: Cbonds, ACRA

By the end of 2024, 80% of public corporate debt had credit ratings, while more than half (61%) of the total outstanding nominal debt fell on issuers rated by two or more credit rating agencies. About 77% of the total volume of outstanding bonds were rated A- and higher on the national scale for the Russian Federation, which corresponds to the probability of expected one-year default rate of ACRA at less than 1.5% in the ruble-denominated bond market.