Russia scales way back on US Treasury investments

Holdings fall from $49B in April to $15B in May

Russian President Vladimir Putin’s government was busy dumping U.S. Treasurys in the months before his meeting with President Donald Trump.

Russia once ranked among the top

10 foreign holders of U.S. Treasury bills, notes and bonds. Not anymore. A monthly Department of the Treasury report issued Tuesday showed that Russia in May fell below the

$30 billion minimum necessary for inclusion on the government’s monthly list of major Treasury holders.

The updated ranking showed China maintaining its place as the top holder of U.S. Treasurys, followed by Japan, Ireland, Brazil and the United Kingdom. Other nations followed, with Chile just making the list at $30.2 billion in Treasurys.

Russia’s holdings of Treasury bonds, bills and notes dropped to $14.9 billion in May, plunging from $48.7 billion in April, according to government data compiled by Bloomberg.

The change came after the Trump administration’s April 6 imposition of new economic sanctions on 38 individuals and companies close to Putin – including seven Russian oligarchs and

17 government officials.

Asked about the shift in Russia’s holdings, a Department of the Treasury spokesman told Bloomberg the U.S. Treasury market is the world’s deepest and most liquid and said demand remains robust. The spokesman also said the department doesn’t comment on individual investors or investments. Russia’s holdings have fluctuated in recent years, running as low as $7.4 billion in March 2007 and as high as $175.7 billion in July 2010, Department of the Treasury data show.

A $30 billion to $40 billion drop in Treasury security holdings by a foreign country during a one-month time period would be significant but not unprecedented, said Boris Rjavinski, director of rate strategy at Wells Fargo.

China’s holdings of U.S. Treasuries declined by roughly $200 billion over several months when the country was going through a currency exchange adjustment process a few years ago, Rjavinski said. The market size for Treasurys is more than $15 trillion, large enough to absorb such

changes, he said.

Russia’s central bank reserve portfolio could be diversifying into non-dollar assets, for instance, European sovereign bonds or precious metals, Rjavinski theorized.

“If that’s what’s going on, geopolitical considerations could certainly be a part of the shift,” he said.

“It’s also possible they simply have a view that other markets will outperform U.S. government debt going forward,” he said.

Although the drop in Russia’s U.S. Treasury holdings was large, it represented a “drop in the bucket” in the context of the overall U.S. Treasurys market, said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management.

“Investors should be more worried if China were to start selling significant amounts of U.S. Treasurys in retaliation to the escalating trade tensions,” Ripley added.

Russia signaled as far back as 2009 that it planned to reduce the percentage of Treasurys in its foreign exchange reserves.

The U.S. dollar moved lower that year after Russian banking official Alexei Ulyukayev said his country’s central bank would buy bonds issued by the International Monetary Fund and increase the share of reserves held in bank deposits, according to the International Business Times.

Even while dropping U.S. Treasurys, Russia has boosted its gold reserves.

The Bank of Russia said in June that its holdings of gold rose 1 percent in May to 62 million troy ounces, valued at $80.5 billion, Bloomberg reported.

The increase brought Russia’s gold bullion reserves to the highest share during Putin’s 18 years of leading Russia.