- Sovereign Debt
Russia has never held as many U.S. Treasuries as China and Japan, but the country was in a good position on the list of Treasury holders (Treasury International Capital list or TIC’s list), that is, until very recently. In March, Russia was in 16th place with USD 96.1 Bn in Treasury holdings. In April, it liquidated almost half of its holdings, and ended the month with USD 48.7 Bn and bought gold to diversify reserves, as the Governor of the Central Bank of Russia Elvira Nabiullina said after the sell-off of May. This knocked Russia into 22nd place behind the United Arab Emirates and Thailand. Then in May, Russia continued its U.S. Treasuries sell-off and disappeared entirely from the TIC’s list. The smallest one on the list was Chile, with USD 30.2 Bn. Russia’s holdings must have fallen below that amount, and we can imagine to zero…
If there was a message in Russia’s liquidation of U.S. Treasuries, it was very difficult to hear clearly. Indeed, the 10-year Treasury sell-off that had started last September peaked with the 10-year yield at 3.1% on May 17th. Since then, the 10-year Treasury has rallied under heavy demand, and the yield has fallen – thus fueling fears about the inverted yield curve. Several explanations of Russia’s sell-off are possible. It could be a flight to safety (hence the gold purchases) because of the global trade posturing between the United States and the rest of the world led by China, the European Union, and Canada. It could be related to sanctions imposed by the United States on Russia in April (as the Trump administration imposed new sanctions on April 6 on seven of Russia’s richest men and 17 top government officials). Lastly, it could be a political maneuver to get rid of U.S. assets before they plunge in case of a recession (following the potential inverted yield curve).
Julien Moussavi, Head of Economic Research – Sources: Beyond Ratings, Bloomberg