The buzz du jour seems to be surrounding the good-news-bad-news coming out of Russia. The good news is that the Russians seem willing to pitch in to buy some of these IMF “bonds” (which aren’t really bonds at all, they’re more like loans, seeing as how only sovereigns can buy them and they won’t be traded anywhere). The bad news is that Russia is simultaneously saying that in order to raise the money to buy the bonds, they’ll sell some of their Treasury holdings.
If I had to guess at how all this is going to play out, I’d say that
- any bond purchases by Russia will be so small (on the order of $10 billion or so) that they would make no difference at all to the Treasury market;
- any IMF bonds will be denominated in dollars, not SDRs, and as a result there will be no extra currency diversification of sovereign FX reserves;
- in general this whole question of the IMF issuing bonds is going to turn out to be a non-issue as far as the big picture of international capital flows is concerned.
That said, my colleague Richard Baum passes along this chart of official Treasury holdings; it doesn’t include things like sovereign wealth funds, but does show that Russia is really not nearly as important, when it comes to such things, as China and Japan. If either of them start selling off their Treasuries, the effects on the secondary market might be significant.
“He said Russia would not immediately sell its treasury holdings but would rather wait until the securities mature, gradually replacing them with other assets. Russian officials earlier said they were concerned about U.S. inflation.”
This sounds like he’s saying that, in the Flight to Safety, they bought short term US bonds, and that, now that conditions are easing, they’re going to move out of that strategy. When the bonds mature, there’s nothing stopping them from buying US bonds other than low interest rates.
“Russia holds around 30 percent of its reserves in treasuries after central bank asset managers last year cut their holdings of riskier assets such as bonds of U.S. agencies Fannie Mae and Freddie Mac.”
This was the Flight to Safety. Still unexplained, at least to me, is why Agency Bonds, which I took to be Explicitly Guaranteed in fact, were not considered to be so by the world community.In any case, once the flight is over, we should expect investors to move some money out of these safer investments.
“Russia increased its investment in liquid treasuries during the peak months of the crisis to have the money readily available to support the rouble and is ready to retrace those moves now that the pressure on the rouble has eased.”
I think that’s what I just said.
“This is potentially quite negative for the dollar,” said Geoff Kendrick, senior currency strategist at UBS in London.”
Yes, well, I guess that we should want a continuing Flight to Safety then. What’s the point of his statement? I don’t see the ominous signs in this story.
By the way, everyone should take a look at the Reuters post on the Arms Trade In Somalia.- Posted by Don the libertarian Democrat
"Russia to cut holdings of U.S. Treasuries
MOSCOW (Reuters) - Russia on Wednesday pledged to cut the share of U.S. treasuries in its $400 billion reserves, driving the dollar lower on global markets, although it said the move would be gradual and only replace bonds as they expire.
Central bank First Deputy Chairman Alexei Ulyukayev said it would buy bonds issued by the International Monetary Fund and also up the share of reserves held in foreign bank deposits, also reduced in the wake of the banking crisis last year.
Russia holds around 30 percent of its reserves in treasuries after central bank asset managers last year cut their holdings of riskier assets such as bonds of U.S. agencies Fannie Mae and Freddie Mac.
"Now this share (of treasuries) will fall because the window of opportunity is opening, the situation with banks is becoming clearer," Ulyukayev said. "We will increase the share of bank deposits, the share of repos will be bigger as well."
He said Russia would not immediately sell its treasury holdings but would rather wait until the securities mature, gradually replacing them with other assets. Russian officials earlier said they were concerned about U.S. inflation.
Russia earlier pledged to buy about $10 billion worth of bonds to be issued by the IMF as part of a fundraising effort to help countries hit by the global financial crisis but there is no firm timetable for such an issue.
Russia increased its investment in liquid treasuries during the peak months of the crisis to have the money readily available to support the rouble and is ready to retrace those moves now that the pressure on the rouble has eased.
The country keeps most of its sovereign debt holdings in short-term paper. It took the country less than a year to cut its position in papers of Fannie and Freddie from $100 billion to virtually zero.
NEGATIVE FOR THE DOLLAR
The dollar slipped against a range of currencies, while U.S. Treasury yields rose after news of the Russian statement. The dollar index fell as low as around 79.483 after the news from 79.662 shortly before the comments.
U.S. Treasuries fell further after the comments, pushing up the benchmark 10-year T-note yield more than five basis points to a session high of 3.92 percent.
"This is potentially quite negative for the dollar," said Geoff Kendrick, senior currency strategist at UBS in London.
"The main jump was in sterling ... If anyone just now would benefit it would probably be investments into sterling as a reserve currency."
Russia, the world's second largest oil exporter, has been pushing for a rethink on the dollar's status as the world's reserve currency of choice and plans to discuss the dollar's role with BRIC group partners Brazil, India and China at a summit next week.
Alexei Miller, chief executive of Russia's gas export monopoly Gazprom, called at a conference in Italy for a reform of "a system linking oil prices to only one currency" in favor of a multi-currency settlement system.
Ulyukayev said Russia could also consider including assets denominated in China's yuan but only after Beijing liberalizes its capital account transactions, making the yuan a convertible currency.
"As soon as the Chinese authorities deem the capital account liberalisation acceptable, the yuan will be in demand... I do not know how much time is needed for that," Ulyukayev said.
(Reporting by Yelena Fabrichnaya, writing by Gleb Bryanski; editing by Patrick Graham)"