When 31% Is Not Enough: Inside the Default Wave That Hit Russia's High-Yield Bond Market in 2025

There is a corner of the bond market where a yield of 31% per annum is not a lottery ticket but the ordinary entry price — and where, in the first half of 2025, every sixth ruble of outstanding debt turned out to be problem debt. This is the segment of high-yield bonds, known in Russia by the three-letter abbreviation VDO (высокодоходные облигации), the paper issued by borrowers too small, too risky or too young for the investment-grade club. Over six months, defaults in this segment grew sixfold and reached 19.3 billion roubles, according to calculations by Renaissance Capital (ИК «Ренессанс Капитал») published by Kommersant on July 23, 2025. Yet the market did not collapse, retail investors did not flee, and new placements actually grew by almost a quarter. This deep dive reconstructs the anatomy of the first full-scale default wave on Russia's high-yield debt: who defaulted and on how much, why the wave broke precisely now, how the segment's yield mathematics work against borrowers, and what the refinancing wall of autumn 2025 through spring 2026 means for issuers and investors alike.

The VDO market: a segment without a legal definition

Before dissecting the defaults, it is worth understanding what kind of market we are talking about, because the term "high-yield bonds" has no legal definition in Russia at all. Market participants use a set of informal criteria: a credit rating no higher than the lower investment grades (BBB and below, or none at all), a modest issue size, and — the defining feature — a yield premium over government OFZ paper wide enough to compensate for elevated credit risk. It is precisely this premium that makes VDO attractive to a specific buyer: the retail investor hunting for double and triple digit yields in an economy where the safest assets already pay generously.

Renaissance Capital estimates the entire VDO segment at 184 billion roubles of outstanding debt. Against the trillions circulating in the sovereign and blue-chip corporate markets, this is a niche — but a niche with an outsized social footprint, because its bonds are sold primarily to households through brokers, and its issuers are exactly the mid-sized companies that bank lending at 20%+ rates has squeezed out of the credit market. The bond market became their last affordable source of external finance. That is why what happened in the first half of 2025 is not merely a statistic about a small asset class: it is a stress test of the mechanism through which high interest rates transmit themselves into the real economy.

Anatomy of the wave: the first half of 2025 in numbers

The headline numbers collected by Renaissance Capital analysts describe a segment under visible stress. Twelve issuers failed to meet obligations on 28 bond issues; the volume of debt not repaid on time reached 19.3 billion roubles. The methodology matters: the calculations count only failures to redeem principal, excluding issues where coupon payments alone were delayed — meaning the true breadth of payment distress is even wider than the headline suggests.

The comparison with previous periods shows how abruptly the regime changed:

• first half of 2024: defaults on just two VDO issues totalling 0.3 billion roubles — isolated incidents, not a trend;
• second half of 2024: 15 default cases worth 3 billion roubles — the first tremor as the key rate climbed to its record peak;
• first half of 2025: 12 issuers, 28 issues, 19.3 billion roubles — a sixfold jump in volume in six months;
• the share of problem debt: more than 10% of the 184 billion rouble VDO market by issues with missed redemptions;
• adjusted share: excluding one concentrated case and cured technical defaults, problem debt falls to 2.4% of the segment — a level analysts regard as uncomfortable but not systemic.

That gap between "more than 10%" and "2.4%" is the key to understanding the whole episode. The default wave of 2025 is simultaneously a dramatic event for the holders of specific papers and a contained phenomenon at the scale of the market. Both statements are true, and the difference between them is explained by concentration, by the legal mechanics of technical default, and by what happened afterwards.

One issuer, three-quarters of the damage

The single largest contributor to the wave was FPK Garant-Invest (ФПК «Гарант-Инвест»), a Moscow commercial real estate company whose portfolio of shopping centres and office buildings had been financed through a dense stack of public bond issues. Five of its bonds with a combined 14.4 billion roubles of missed redemption make up roughly three-quarters of the entire half-year default volume. For a segment of 184 billion roubles, one borrower's distress is enough to move the market-wide ratio above 10% — a reminder that in small asset classes, idiosyncratic risk is market risk.

The commercial logic behind the default is a textbook case of the 2024–2025 rate environment: a property company whose rental yield is measured in single digits cannot indefinitely service debt placed at twenty-plus percent. Garant-Invest chose the path that defaults often take in markets where bankruptcy is a value-destroying option for everyone: the company launched a restructuring that extends the maturity of the issues and allocates shares of the issuer to bondholders. Creditors are, in effect, being converted into co-owners of a real estate business that generates cash more slowly than the debt was accumulating.

Technical defaults that were cured

The second element softening the picture is the legal distinction between technical and actual default. Under Russian law, a failure to redeem an issue or pay a coupon lasting up to ten business days is a technical default; only after that window does it become an actual one. Three issuers used this window — or simply found the money late — and cured their failures: RegionSpetsTrans («Регионспецтранс»), a rail operator, for 237 million roubles; Nappy Club («Нэппи Клаб»), a consumer goods company, for 150 million; and Mosregionlift («Мосрегионлифт»), an elevator services firm, for 70 million. Together these are real stress episodes, but not losses — at least not yet.

The danger, practitioners warn, is what happens when an issuer chooses the third available path: to do nothing. "The worst case is when a defaulting issuer takes no action at all," notes Mikhail Lokshin, an expert at the Association of Bond Owners (Ассоциация владельцев облигаций). By count, such cases are the most common, though not the largest by amount. "This is the hardest scenario, the consequence of which is the investor's total loss of capital. Even after bankruptcy proceedings, years after the default, the recovery rate — when there is any — is at the level of a statistical error," Lokshin says. For the retail holders who dominate the segment, this is the essential asymmetry of high-yield investing: the coupon is paid monthly, but the principal can vanish permanently.

The rate trap: why defaults rose while yields fell

The paradox of the first half of 2025 is that the default wave unfolded against a backdrop of declining placement rates. Over six months, the average yield of primary VDO placements with a fixed coupon fell by 390 basis points to 31.3% per annum, according to Vladimir Vasilenko, debt market analyst at Renaissance Capital. Spreads to the OFZ zero-coupon yield curve narrowed by 60 basis points — yet at 11.9 percentage points they remain near historic maxima. In other words, the segment got nominally cheaper to borrow in, but only because the whole rate curve came down from its peak; the extra price that risky borrowers pay over the sovereign benchmark barely moved.

And the average coupon burden on issuers is still rising, not falling. "Even where yields in certain categories are declining, average coupon rates keep growing, because old loans at lower rates are being replaced by loans whose rates remain above first-half-2024 levels," explains Mikhail Nikonov, director of corporate ratings at Expert RA (Эксперт РА). This is the debt treadmill of a high-rate era: a company that borrowed at 15% in 2023 and must refinance in 2025 does so at 30%, doubling its interest burden precisely when its customers' demand and its own working capital are squeezed by the same rates.

The macroeconomic sequence behind the wave is straightforward in retrospect. The Bank of Russia held its key rate at a record 21% from late October 2024 and began cutting only in June 2025, bringing it down to 20% — the easing cycle referenced throughout Kommersant's report had barely started by the time the article was published in late July. For most of the first half, VDO issuers were refinancing debt into the most expensive monetary conditions in two decades. Companies that had built their capital structures on the assumption of a quick return to normal rates discovered that normal was not coming on schedule.

Why high-yield borrowers break first

The segment's sensitivity is structural. VDO issuers are typically mid-sized private companies in competitive, low-margin industries — precisely the businesses with the least pricing power and the thinnest buffers. High credit rates combined with weakening business activity created a difficult situation for a whole set of industries, according to Denis Kozlov, managing director of the capital markets department at Sovcombank (Совкомбанк): fuel and lubricants trading, road and rail freight transport, and car dealerships. The list reads like a map of the economy's most rate-sensitive, working-capital-intensive sectors — the ones where inventory is financed by short-term debt and a few months of 25–30% money can consume an entire year's margin.

Retail investors stayed: issuance grew 23%

The most counterintuitive finding of the half-year is that the default wave did not scare away the segment's core buyer. The volume of new VDO placements in the first half of 2025 rose 23% year on year, Kozlov estimates, and "investor demand is growing, especially for fixed-income bonds." Households kept buying paper yielding around 30% even as the news flow filled with restructuring announcements.

This behaviour has a rational core. With the key rate at 20–21%, deposits and even investment-grade bonds pay far less than VDO; for a retail investor willing to accept issuer risk, the segment offered the only double-digit real yield premium available without leaving the regulated perimeter. Diversification across many small positions limits the damage from any single default — a strategy that works precisely until several issuers fail at once, which is what a correlated wave driven by one macro variable (the rate) looks like from the inside. The 2025 experience is a live demonstration of the difference between idiosyncratic and systematic risk in a retail portfolio: spreading money across twenty VDO names does not protect you when the cause of default is common to all of them.

For the market as an institution, sustained retail demand amid defaults has a second implication: the primary market keeps functioning, which means distressed issuers with credible restructuring stories can still refinance. The VDO segment of 2025 was stressed but not frozen — a meaningful distinction, because a frozen primary market converts liquidity problems into solvency problems within a couple of quarters.

The refinancing wall: September 2025 to March 2026

If the first half was about who broke, the second half and the following spring are about who must come back to the market. Vasilenko draws attention to a brutal calendar fact: between September 2025 and March 2026, issuers must redeem more than 25% of the entire outstanding VDO volume. A quarter of the segment's debt matures in a seven-month window, in an economy where refinancing at acceptable terms is available not to everyone.

The arithmetic of survival, as Vasilenko lays it out, is unforgiving. Even if the Bank of Russia cuts the key rate to 15%, refinancing rates for existing VDO debt would still exceed 26–27% per annum, because the spread over the sovereign curve sits near its historic maximum. "A noticeable improvement in the VDO segment requires a final rate no higher than 20% per annum, which will not happen without the spread narrowing by at least half from current levels," the analyst says. Translated from spread language: for the segment to breathe, the market must start believing that risky borrowers are roughly half as risky as it currently prices them — a change of heart that defaults, by their nature, do not encourage.

This creates the wave's second-order dynamic. Defaults push spreads up; wide spreads keep refinancing expensive; expensive refinancing produces new defaults. Breaking the loop requires an external force — a decisive easing cycle by the central bank — and the beginning of that cycle in mid-2025 was too early and too shallow to do the job on its own. Kommersant's conclusion is measured but clear: if the Bank of Russia does not cut the key rate actively and the VDO risk premium does not shrink, the number of defaults in the segment may continue to grow in the near term.

What the wave teaches investors, issuers and the market

Beyond the specific numbers, the first-half default wave in Russia's high-yield segment offers a set of practical lessons that will outlive 2025.

1. Concentration turns a niche into a systemic story. One issuer — Garant-Invest with 14.4 billion roubles across five issues — accounted for about three-quarters of the half-year default volume. In a 184 billion rouble market, single-name exposure is market exposure; retail holders who thought they were diversified across many small bonds were, in aggregate, long the balance sheet of a few large troubled borrowers.
2. The legal ten-day window matters less than the issuer's strategy. Technical defaults can be cured — three issuers proved it — but the defining variable is whether the borrower restructures proactively, as Garant-Invest did with extensions and equity, or simply goes silent, which historically ends in near-total loss.
3. Falling headline yields do not mean falling debt burdens. Primary rates dropped 390 basis points to 31.3%, yet average coupon costs kept rising because old cheap debt was being replaced by new expensive debt. For issuers, the relevant metric is the weighted cost of the whole stack, not the marginal placement rate.
4. Spreads are the real price of the segment. At 11.9 percentage points over OFZ, the VDO risk premium sat near record levels even after narrowing. Until the spread halves, rate cuts alone cannot restore affordable refinancing — a lesson for anyone modelling recovery scenarios off the key rate alone.
5. The maturity calendar is the forecast. With over a quarter of the segment's volume redeeming between September 2025 and March 2026, the default trajectory of the next three quarters was largely written into the bond documentation years earlier. Watching the redemption calendar is more informative than watching the rating agencies, whose actions in this cycle arrived after the market had already repriced risk.
6. Retail demand is pro-cyclical. Households chased 30% yields straight through a default wave, growing primary issuance by 23%. This keeps the market liquid in good times and amplifies losses in bad ones, because the marginal buyer arrives exactly when the risk is greatest.

The bottom line

The first half of 2025 marked the moment when Russia's high-yield bond market stopped being a theoretical curiosity and became a live credit event. Defaults grew sixfold to 19.3 billion roubles; more than a tenth of the segment's outstanding volume missed scheduled redemptions; one real estate issuer supplied three-quarters of the damage; and the cured technical defaults of three smaller borrowers kept the adjusted problem-debt ratio at a survivable 2.4%. The wave broke on a market that had grown fast on retail appetite for thirty-percent yields during the most restrictive monetary conditions in a generation — and it will keep rolling until the refinancing wall of September 2025 through March 2026 is either climbed or crashed through. The key rate cycle has turned, but at spreads near historic maxima, even a fall to 15% leaves VDO borrowers paying 26–27% to stay alive. For investors, the lesson is about the difference between yield and expected return: in a segment where bankruptcy recovery is, in the words of the Association of Bond Owners, a statistical error, a 30% coupon is not an opportunity — it is a price, and in the first half of 2025 the market finally showed what that price covers.