Russia sharply cuts its holdings of US Treasuries

Its sale of $14bn of long-term Treasuries in May means its holdings have plunged from almost $100bn at the end of March, according to official US data published this week. May’s decline was the second straight month of selling by Russia, leaving its holdings at $14.9bn at the end of May.

The selling came as relations with Washington remained turbulent, with the US imposing stringent sanctions against Moscow in April. The measures targeted seven high-profile Russian businessmen, a dozen of their companies and 17 senior government officials. For the first time the sanctions affected globally important public companies such as Rusal, the aluminium producer.

“It looks like Russia was worried about sanctions and their ability to trade Treasuries so they sold,” said Andrew Brenner, head of international fixed income at National Alliance Securities.

The sanctions sparked a sell-off in Russian equities and saw the rouble lose more than 10 per cent of its value against the dollar.

Russia’s central bank has explained the drop in its holdings as an attempt to reduce over-exposure to a single asset class. But economists said the move was likely to have been triggered by concern over the US’s sanctions policy, with Congress discussing several bills that would enact even harsher measures, such as a ban on buying Russia’s sovereign debt.

Paul Ryan, speaker of the House, said on Tuesday he would “be happy” to consider further sanctions against Russia in the wake of Donald Trump’s controversial summit with Russian president Vladimir Putin.

“Cutting risk exposure is simply a sensible risk management action to take assets out of harm’s way,” said Chris Weafer, chief economist at consultancy Macro Advisory.

Oleg Kouzmin, chief economist at Moscow investment bank Renaissance Capital, said: “The reduction in exposure is huge, so I believe this is indeed partly related to reassessing geopolitical issues.”

While Russia cut its holdings, other countries sustained their appetite for Treasuries in May, adding a further $27bn. China, the largest foreign holder of US Treasuries, bought $7bn of long-term Treasuries, helping take its holdings up to $1.18tn.

The purchases come despite intensifying trade disputes that have sparked worries that foreign investors in the Treasury market might seek to retaliate by selling their holdings.

“I am concerned about purchases tapering off from China and Japan,” said Subadra Rajappa, an interest rate strategist at Société Générale. “It’s too early to tell if there has been an impact from the trade-war on foreign purchases of Treasuries.”

Source: Financial Times