Russia has sold 84% of US debt bonds: what does it mean

Russia quickly sold off the overwhelming majority of its US debt bonds.

Фото: Depositphotos

From March to May, Russian stocks of US Treasury bonds decreased by $ 81 billion, representing 84% of total US debt, writes CNN.

What is US Treasury

Securities issued by the US Treasury. American government bonds are owned by foreign legal entities and individuals, as well as companies, funds and private investors, said TASS. Their trade allows the US government to receive additional funds to finance government spending in the face of large budget deficits ($ 74,9 billion in June 2018 of the year).

US Treasuries are considered the most reliable securities traded on the global financial market, although not the most profitable. Currently, the yield on such securities with a maturity of 1 year is 2,39%, 30 years - 2,97%.

Now, Russian ownership of American public debt is less than that of Turkey ($ 32,6 billion), South Africa ($ 24,4 billion) or Kazakhstan ($ 17,6 billion). Russian investments in Treasuries returned to the level of mid-year 2007 ($ 14,7 billion).

"Not particularly disturbing."

Russia's sale of government debt had a short-term effect, writes CNN. The fact is that Russia is not the leading creditor of the United States, such as China.

Even at the recent peak of Russia in November of 2017, in the amount of $ 105,7 billion, it took only 15-th place in terms of the value of the foreign holder of the US debt. China owns about $ 1,2 trillion, or about 10 times more than Russia.

“It’s not particularly concerning,” said Guy Lebas, chief fixed income strategist at Janney Capital.

Yevgeny Chausovsky, a senior analyst at Eurasia at the consulting firm Stratfor, agreed that moving away from American debt "is not a big deal."

“If we had such a sell-off from China, it would be a completely different picture,” he said.

15 August will be the new data of foreign ownership of US Treasury bonds.

Russia explained its actions on sales of Treasury bonds:

“In recent years, we have increased the share of gold, almost tenfold in ten years, so we are diversifying the entire structure of currencies,” Elvira Nabiullina, head of Russia’s central bank, told state media earlier this month.

Nabiullina added that Russia assesses "all risks: financial, economic and geopolitical."

Smashing sanctions against Rusal

Of course, geopolitical tensions between the United States and Russia increased around the time when sales were accelerating.

In April, the Trump administration imposed severe sanctions on the aluminum company Rusal, founded by one of Vladimir Putin’s closest allies. Fines initially forbade Americans and people from other countries to do business with Rusal, which produces 7% of world aluminum. Aluminum prices soared.

“Rusal’s exports were essentially paralyzed: it was a much more crushing type of sanctions than what Russia had previously faced,” said Jason Bush, an analyst at the consulting firm Eurasia Group.

“One theory is that this was Russian retaliation for U.S. sanctions,” Bush said.

If so, the damage was relatively minor, given the rebound in the US treasury market. Recently, the Trump administration announced that it is considering the possibility of lifting sanctions against Rusal.

Another theory is that Moscow fears further US sanctions that could lead to a freeze or even confiscation of its stocks of US debt.

“So Russia may have tried to avoid this threat. That's a more plausible argument," Bush said.

In fact, analysts say that this is probably a combination of political pressure from the Kremlin and economic arguments that forced the central bank of Russia to retreat from US Treasury bonds.

"Economic Attack" on America

The situation in Russia underlines long-term concerns that a large American creditor may threaten to cause damage to America by selling debt. These concerns have been heightened by America’s growing federal deficit and the ongoing trade war with China.

But analysts doubt the logic of this concern. China will fight to buy this big debt right away.

Read also on ForumDaily:

Saving "Rusal": Why Deripaska is backing up for the company in the EU

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