Russia’s government bond index (RGBI) has crashed to its lowest levels since the introduction of Western sanctions during the Ukraine war, raising fears of a sharp economic slowdown.

The RGBI index hit new lows of 96.330 rubles on Friday, signalling a crisis of confidence among investors.

Investors are demanding higher yields, which in turn will push up borrowing costs for the government.

This could force budget cuts or tax hikes, straining an already stressed economy for Putin and Russia.

Banks, the main buyers of government bonds, are also showing a reluctance to purchase more debt.

Western financial analysts say this creates a dangerous cycle where loose fiscal policy leads to tighter monetary conditions, risking a sharp economic slowdown.

One expert noted: “The plummeting bond index could isolate Russia from global investors, making future borrowing even more difficult.

“With interest rates potentially becoming prohibitive for the private sector, the risk of financial repression policies looms large.”

The market sell-off comes as hundreds of shopping centres across Russia face bankruptcy due to high levels of debt.

The Union of Shopping Centres (STTs) estimates that half of the country’s shopping centres are facing high debt burdens.

Many have taken out loans with floating rates, which creates a risk of widespread bankruptcies.

Marina Malakhatko, a senior director at the consulting firm CORE.XP, told the Russian media outlet Kommersant that at least 200 shopping malls will be at risk of bankruptcy in 2025. She said some owners are already looking to sell their assets.

Debt servicing has become even tougher after Russia‘s Central Bank was forced to hike interest rates to 21 percent – the highest level in over 20 years.

Russians have also faced tax increases, as the Kremlin seeks to raise more money to fund its war in Ukraine.

Government spending on national defence is expected to rise to $120 billion (£93bn this year from $75 billion (£58bn) in 2023.

In the summer Putin signed off on a package of tax rises worth almost $30 billion (£23bn), tapping workers and companies to raise more funds for his Ukraine offensive.