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

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