Monthly Archives: May 2014

United States Treasuries, Russia and Brussels Finance Center

U.S.-Department-of-the-Treasury

Russia has offloaded a fifth of its holdings of US Treasury debt in March 2014 at a time of heightened speculation that its assets would be frozen as part of sanctions over the crisis in Ukraine.  It was the largest seller during the month while Belgium extended its big buying streak, according to US Treasury International Capital (TIC) data released on Thursday.  A decline of $25.8bn in Russia’s Treasury holdings to $100.4bn involved the selling of short-term bills.  But the large drop in Russia’s holdings does not explain a record weekly $105bn drop in US government debt held at the US Federal Reserve on behalf of official foreign institutions back in March 2014.  At the time, many in the bond market thought Russia may have shifted to a new custodian rather than run the risk of having its assets in the US frozen due to sanctions over Ukraine.  “The TIC data suggests it wasn’t entirely a Russian story,” said Ian Lyngen, a strategist at CRT Capital.  He said the selling by Russia “provides some support to the argument that the shift in holdings has been driven by geopolitical concerns versus economics and valuation”.

Russia’s Treasury holdings have declined over the past five months from $149.9bn. In contrast, Treasury holdings for Belgium continued to expand sharply.  The country added a further $40.2bn during march and its holdings have more than doubled in the past year to $381.4bn, making Belgium the third largest foreign holder of US government debt after China and Japan.  The move is seen reflecting secret buying of top-rated sovereign debt by other countries using Brussels as a financial centre.  “This is consistent with the recent trends and continues to suggest another country is running their purchases through a Belgium-based custodian,” said Mr Lyngen.  He added that Belgium has purchased Treasury bills over the past five months while it has sold a net $6.82bn of notes and bonds.

The US Treasury has sought in recent years to improve how its official data are collected as some countries purchase government bonds through intermediaries in major financial centres, such as London or Hong Kong.  This means financial centres are temporarily highlighted as large buyers, rather than the countries that are really adding to their Treasury holdings.  Some traders believe the hefty buying by Belgium could also stem from investors utilising the clearing and securities lending services of Euroclear, the bank-owned central securities depository and custody service headquartered in Brussels.

Overall foreign purchases of Treasury notes and bonds, known as coupon debt, during March was $25.9bn, down from the $92.5bn that was bought in February.  China remained the largest foreign holder of Treasuries, with its portfolio steady at $1.27tn in March while, at number two, Japan trimmed its inventory down to $1.2tn. Oil exporters and Caribbean banking centres, which are a proxy for hedge funds, and Switzerland were modest buyers in March 2014.

Michael Mackenzie, Russia dumps a fifth of its US Treasuries, Financial Times, May 15, 2014

China/Russia Chipping Away Dollar Status as Reserve Currency?

Russia's President Putin and China's President Xi Jinping attend a signing ceremony in Shanghai,  May 2014

VTB Bank and Bank of China signed on May 20, 2014 an Agreement on Cooperation in the presence of Russian President Vladimir Putin and Chinese President Xi Jinping.  The agreement was signed by First Deputy President and Chairman of VTB Bank Management Board Vasily Titov and Bank of China President Chen Siqing.

Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions.  Vasily Titov said :”The signing of the agreement underscores VTB Group’s ongoing drive to grow its business in Asia, and will help facilitate the development of bilateral trade and economic relations between Russia and China, which have always been reliable partners.”

VTB Bank signs cooperation agreement with Bank of China, Press Release VTB Bank, May, 2014

Monetary Implications of Geopolitics: Russia, United States, Ukraine

EE_Savings_Bond The record drop in U.S. government securities held in custody at the Federal Reserve is fueling speculation that Russia may have shifted its holdings out of the U.S. as Western nations threaten sanctions.  Treasuries held by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, 2014 according to Fed data as the turmoil in Ukraine intensified. As of December, Russia held $138.6 billion of Treasuries, making it the ninth largest country holder. Russia’s holdings are about 1 percent of the $12.3 trillion in marketable Treasuries outstanding, according to data compiled by Bloomberg.  “The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. in a telephone interview. “If Russia did it, then they may have transferred the holdings to another bank outside of the U.S.”  Crimea is preparing for a March 16 referendum on splitting from Ukraine after Russia seized the peninsula. Secretary of State John Kerry warned Russia that the U.S. and Europe could take serious action after the referendum should there be no sign of a resolution to the Ukraine crisis.” The decrease in custody holdings at the Fed spurred speculation Russia may have moved to raise funds to defend its currency as the turmoil worsens. The ruble has declined 10.3 percent against the dollar this year and reached a record low 36.9 per dollar on March 3. It declined 0.2 percent today to 36.6.  “If they were selling to defend the currency, the market would have felt the impact on yields more substantially,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA. Central banks at the end of last year may have been adding to their holdings in Europe, such as Belgium’s central bank. Belgium custodial holdings of Treasuries rose by 28 percent in December to $256.8 billion, according to Bloomberg data.  “A lot of people are looking at Belgium,” Keeble said, referring to shifts in foreign reserves. Foreign holdings of Treasuries totaled a record $5.79 trillion at the end of last year (2013), according to Treasury data released in February. Fed holdings for its own account were $2.2 trillion. The U.S. central bank has begun tapering its monthly purchases of Treasuries to $35 billion as it winds down monetary stimulus that was designed to help foster economic growth.  China, the biggest foreign U.S. creditor, held $1.27 trillion of U.S. government bonds as of December. Japan is the second-largest holder at $1.18 trillion. Susanne Walker , Fed Custody Holdings Record Decline Fuels Russia Speculation, Bloomberg, Mar 14, 2014

Iran Cooperates with the IAEA on its Nuclear Program: May 2014

Negotiations about Iran's nuclear program

The  International Atomic Energy Agency (IAEA) quarterly report made available tp the public  on May 2014 

Main Developments

• Iran has implemented the six initial practical measures that it agreed with the Agency in
November 2013 in relation to the Framework for Cooperation and both parties have agreed on the next   seven practical measures to be implemented by Iran by 15 May 2014, including one measure related to  the information contained in the Annex to the Director General’s November 2011 report.

• On 24 November 2013, the E3+3 [China, France, Germany, Russia, the United Kingdom and the United States] and Iran agreed on a Joint Plan of Action (JPA). The JPA took
effect on 20 January 2014, and the Board of Governors endorsed the Agency undertaking monitoring   and verification in relation to the nuclear-related measures.

Enrichment of UF6 above 5% U-235 is no longer taking place at [Fuel Enrichment Plant (FEP) at Natanz] FEP and [Fordow Fuel Enrichment Plant] FFEP. The amount of  nuclear material that remains in the form of UF6 enriched up to 20% U-235 is 160.6 kg. A proportion   of this material is being downblended and the remainder is being converted to uranium oxide.

• Enrichment of UF6 up to 5% U-235 continues at a rate of production similar to that indicated in   the Director General’s previous report. No additional IR-2m or IR-1 centrifuges have been installed at  FEP, FFEP or [Pilot Fuel Enrichment Plant] PFEP (production area). The amount of nuclear material that remains in the form of UF6   enriched up to 5% U-235 is 7609 kg.

• An updated Design Information Questionnaire (DIQ) for the IR-40 Reactor has been provided   to the Agency. No additional major components have been installed at this reactor and there has been  no manufacture and testing of fuel for the reactor.

• Managed access has been provided to the Agency to centrifuge assembly workshops, centrifuge rotor production workshops and storage facilities….

74. While the Agency continues to verify the non-diversion of declared nuclear material at the   nuclear facilities and [locations outside facilities most of them in hospitals] LOFs declared by Iran under its Safeguards Agreement, the Agency is not in a  position to provide credible assurance about the absence of undeclared nuclear material and activities   in Iran, and therefore to conclude that all nuclear material in Iran is in peaceful activities.  75. Iran has implemented, within the specified three-month period, the six initial practical measures   contained in the Annex to the Framework for Cooperation. The Agency is analysing the information  provided by Iran and has requested additional clarifications of some of this information.

Excerpts from Implementation of the NPT Safeguards  Agreement and relevant provisions of Security Council resolutions in the  Islamic Republic of Iran : Report by the Director General, GOV/2014/10, Feb. 20, 2014

Showing off American Military Hackers: DARPA Plan X

oculus

At the Pentagon Wednesday (May 21, 2014) the armed forces’ far-out research branch known as the Defense Advanced Research Projects Agency showed off its latest demos for Plan X, a long-gestating software platform designed to unify digital attack and defense tools into a single, easy-to-use interface for American military hackers. And for the last few months, that program has had a new toy: The agency is experimenting with using the Oculus Rift virtual-reality headset to give cyberwarriors a new way to visualize three-dimensional network simulations–in some cases with the goal of better targeting them for attack.

“You’re not in a two-dimensional view, so you can look around the data. You look to your left, look to your right, and see different subnets of information,” Darpa’s Plan X program manager Frank Pound told WIRED in an interview. “With the Oculus you have that immersive environment. It’s like you’re swimming in the internet…..If Plan X’s Oculus software ever reaches the eyeballs of actual soldiers–a development that Darpa says is still years away–Pound doesn’t deny that the interface would be used for actual offensive hacking as well as defense and reconnaissance. Like the rest of Plan X, he says it’s meant to be a simpler and more intuitive way for the U.S. Cyber Command and other American military hackers to visualize everything they do in their cyberwar operations. “Think of Plan X like an aircraft carrier,” says Pound. “It can carry any weapon system or capability.”

That sort of admission will no doubt set off alarm bells for critics of the American military’s increasingly aggressive posture on the Internet. The revelation in 2012 that the United States created the Iran-targeted Stuxnet malware and a year of Edward Snowden’s leaks have already demonstrated that the NSA engages in more advanced cyberattack operations than practically any country on the planet. Enabling American hackers to launch those attacks with a tool that’s literally designed for video games could be seen as encouraging a brazen attitude towards cyberwar, disconnecting it from the reality of its consequences.

But Darpa’s Pound counters that safeguards against reckless hacking will be built into Plan X, and that it may actually reduce collateral damage from military cyberattacks by allowing soldiers to better understand the networks they’re attacking.

Excerpt from ANDY GREENBERG, Darpa Turns Oculus Into a Weapon for Cyberwar, Wired, May 23, 2014

The Digital Bombs of DARPA: Plan X

Nuclear Energy in China– the 2.6 billion IPO

Daya Bay Nuclear Power Plant, China

China National Nuclear Power Co. plans to raise up to 16.25 billion yuan ($2.6 billion) in an initial public offering to fund nuclear-power projects, as Beijing pushes nuclear energy and renewables to combat greenhouse-gas emissions and pollution.  The state-owned company, one of the country’s biggest nuclear-power operators by capacity, proposed to sell up to 3.65 billion new shares, or 25% of its enlarged capital, ahead of a listing on the Shanghai Stock Exchange, according to a draft of its IPO plan released on the China Securities Regulatory Commission website.  The proceeds from the IPO will help finance four nuclear-power projects in Fujian, Zhejiang, Hainan and Jiangsu provinces, the company said. These projects were valued at about 151.9 billion yuan.

If completed, the offering could be the largest in mainland China since August 2010, when China Everbright Bank raised 21.7 billion yuan. It also could be the biggest since China lifted a 14-month moratorium on IPOs in January…China aims to reach 200 gigawatts of nuclear capacity by 2030, up from 14.6 gigawatts last year. But the nation must first overcome a number of hurdles.  “Technology constraints, inadequate infrastructure for uranium-fuel fabrication and disposal, public opposition to inland nuclear plants, and shortages of qualified personnel all mean a more realistic nuclear capacity in 2030 will be 175 gigawatts,” according to energy consultancy Wood Mackenzie….

China National Nuclear Power, China General Nuclear Power Group and China Power Investment Corp. operate most of China’s nuclear power plants. China has 17 nuclear reactors operating on six separate sites, according to China National Nuclear Power’s IPO plan.

Amy Li and Wayne Ma, China National Nuclear to Raise $2.6 Billion in IPO, Wall Street Journal,  May 5, 2014

How the Skunk Controls Protesters

image from http://www.desert-wolf.com/dw/products/unmanned-aerial-systems/skunk-riot-control-copter.html

South African company Desert Wolf yesterday unveiled its Skunk riot control drone at the IFSEC security exhibition outside Johannesburg. Armed with four paintball guns, it can fire a variety of ammunition to subdue unruly crowds.The Skunk is designed to control crowds without endangering the lives of security staff. Bright strobe lights and on-board speakers enable operators to communicate with and warn the crowd. If things get out of control the Skunk can use its four paintball guns to disperse or mark people in the crowd. Four ammunition hoppers can load different types of ammunition such as dye marker balls, pepper spray balls or solid plastic balls. Payload capacity of the unmanned aerial vehicle (UAV) is 40 kg but since the gun assembly weighs around 15 kg the aircraft has an excess of power.

In addition to two high definition day cameras, the Skunk carries a FLIR thermal camera for night vision capability. A camera and microphone on the operator’s station records the operators (a pilot and payload operator) so their behaviour can be monitored. Hennie Kieser, Director of Desert Wolf, said people tend to be less aggressive when they are monitored.

Desert Wolf will soon deliver the first 25 units to customers in the mining industry and the UAV will enter service around June/July. Kieser said it was sad that the mines are in a predicament with strike related violence and this is why the mines are the biggest market for the system. A full system including cameras, ground control station etc. will cost around R500 000.

Kieser said Desert Wold will definitely export the Skunk into Africa, primarily for mining operations, and that South African success will lead to other orders. He felt the best market is not in South Africa because of the current legislation restricting drone use.

Desert Wolf Unveils Riot Control UAS, UAS Vision, May 16, 2014