Russia Issues First Yuan-Denominated Government Bonds

On November 12, the Russian Ministry of Finance announced that it would issue its first domestic bonds denominated in yuan. Against the backdrop of a widening fiscal deficit due to the protracted Ukraine crisis, the Russian government is seeking to raise funds from companies holding large amounts of yuan through energy exports to China.

The bonds, with maturities of 3-7 years, will be issued on December 8. The issuance amount will be determined based on a demand survey initiated on December 2. Reuters, citing multiple market sources, reported that Russia plans to issue up to 400 billion rubles (approximately 35 billion yuan).

The bonds can be purchased with both yuan and the Russian ruble. Due to trading on the Moscow Stock Exchange, which is subject to US sanctions, foreign investors will find it difficult to purchase them. The bonds are expected to target investments made using yuan funds accumulated in Russia through transactions with Chinese companies.

Affected by US and EU sanctions, Russia has reduced its trade settlements in US dollars and euros. Russia claims that by 2024, Sino-Russian trade will reach a record high of $245 billion, with 99% of settlements conducted in rubles and yuan. Since 2022, Russian companies have been issuing RMB-denominated corporate bonds.

The need to supplement fiscal revenue is increasing due to escalating military spending. Russia’s fiscal deficit is projected to reach 2.6% of GDP in 2025, up from 1.7% in 2024. An anonymous Russian economist stated, “The decision to issue bonds denominated in RMB was made as an alternative to the ruble-denominated bonds, which are considered riskier.”

Russia continues to face difficulties in obtaining overseas financing. Foreign investment in Russian government bonds has decreased significantly since the Russia-Ukraine conflict. Data from the Central Bank of Russia shows that the proportion of Russian government bonds (denominated in rubles) held by non-residents was only 3.9% in October, compared to approximately 20% before the conflict.

Russia and China are strengthening financial ties, and Russia is reportedly seeking to attract Chinese investment. According to Reuters, Russia is negotiating with China on how to make it easier for Chinese investors to hold assets in Russia, but no conclusion has been reached.