Russia to Sell U.S. Treasuries, buy IMF Bonds
Here we go ...
I've been stating for months that Russia and China hold the key to the dollar's future, and have documented the decreasing demand for new U.S. debt by those two major USD holders, and postulated that it was just a matter of time before that moratorium on new USD debt evolved into actual sales of existing debt. This is a major, major development on the world stage for the greenback, and every nation on the planet with significant Treasury reserves is watching with baited breath.
So many people have adopted the assumption that China and Russia would never sell their USD assets because it would set off a fire-sale event that would only serve to hurt their interests. To that claim, I have countered all along that when the dollar's trajectory is etched in stone anyway, the best scenario for creditors is to liquidate earlier rather than later ... making a scenario like the one that begins today very plausible indeed.
The public face of Russia's move to buy IMF bonds is to assist with efforts to help shore up the conditions of smaller nations ravaged by the crisis, but I view the move as directly related to Russia's very public efforts to use the IMF as a hehicle for replacing the USD as reserve currency of the world through IMF's special drawing rights.
Russia will reduce the share of U.S. Treasurys in its foreign exchnage reserves, the world's third-largest, a senior central bank official said on Wednesday, driving the dollar broadly lower.
Russia holds about 30 percent of the reserves, worth $404.2 billion, in Treasurys. 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 bank deposits.
Russia had 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.
Ulyukayev said Russia had increased its investment in liquid treasuries during the peak months of the crisis and was now ready to cut it, also increasing investment in commercial banks' deposits.
"Now this share (of Treasurys) will fall because the window of opportunity is opening, the situation with banks is becoming clearer. We will increase the share of bank deposits, the share of repos will be bigger as well," Ulyukayev said.
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. Treasurys 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."