Russian holdings declined for a fourth straight month, to $126.2 billion, from $131.8 billion in January, according to figures released today in Washington as a part of a monthly report on foreign holders of Treasuries as well as international portfolio flows.
Russia might have been selling Treasuries, world’s most liquid assets, as part of an effort to limit a decline in the ruble, which lost 2 percent versus the dollar in February, the biggest drop that month among 24 emerging-market peers tracked by Bloomberg. The currency weakened amid rising tensions in Ukraine’s Crimean peninsula.
“Russia’s been slowly shedding holdings,” said Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York. “When you try to defend your currency, this is when you really use those Treasury reserves.”
Russia might have also switched custodian from the Federal Reserve to an offshore center, based perhaps in the U.K., said Sebastien Galy, a senior currency strategist at Societe Generale SA in New York. If that were the case, the securities would show up in the Treasury’s survey as British holdings.
Mark MacQueen, partner and money manager in Austin, Texas, at Sage Advisory Services Ltd., said Russia’s sale of Treasuries was in anticipation of the conflict with the U.S.
“The Russians knew that they were on a path to some kind of face-off with the United States, and moving the money in advance made a lot of sense from their perspective,” MacQueen said. “It tells you they’re aware they need to be one step ahead of the U.S. when it comes to moving their money.”
Treasuries held by foreign central banks dropped by $104 billion, the most on record, to $2.86 trillion in the week ended March 12, according to Fed data. The decline followed Russia’s incursion into Crimea and came as Western nations threatened sanctions.
The U.S. in March designated a group of individuals close to Russian President Vladimir Putin and a Russian bank, preventing them from doing business with the U.S. Further sanctions may hit key sectors of the Russian economy, such as financial services, energy and metals, U.S. Treasury Secretary Jacob J. Lew said on March 20.
China, the largest foreign holder of U.S. Treasuries, cut its holdings by $2.7 billion to $1.27 trillion, the Treasury’s data showed. Japan’s holdings rose by $9.1 billion to $1.21 trillion. Belgium, which became third-largest foreign holder of U.S. Treasuries in January, boosted its holdings to $341.2 billion in February, an increase of $30.9 billion from the prior month.
Belgium hosts Euroclear Bank SA, which provides securities settlements for foreign banks, and so the increase in Belgian holdings reflects growing global appetite for U.S. Treasuries, said Marc Chandler, the global head of currency strategy in New York at Brown Brothers Harriman & Co.
“It’s not like Belgium loves U.S. Treasuries,” he said. “It’s reflecting foreign demand outside of Belgium -- Euroclear settlement has a hub there. It’s an agent, foreign banks are operating in Belgium using the settlement hub.”
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