Russia to cut holdings of U.S. Treasuries

MOSCOW Wed Jun 10, 2009 10:02am EDT

Central bank First Deputy Chairman Alexei Ulyukayev during a conference in Moscow, October 1, 2008. REUTERS/Sergei Karpukhin

Central bank First Deputy Chairman Alexei Ulyukayev during a conference in Moscow, October 1, 2008.

Credit: Reuters/Sergei Karpukhin

MOSCOW (Reuters) - Russia on Wednesday pledged to cut the share of U.S. treasuries in its $400 billion reserves, driving the dollar lower on global markets, although it said the move would be gradual and only replace bonds as they expire.

Central bank First Deputy Chairman Alexei Ulyukayev said it would buy bonds issued by the International Monetary Fund and also up the share of reserves held in foreign bank deposits, also reduced in the wake of the banking crisis last year.

Russia holds around 30 percent of its reserves in treasuries after central bank asset managers last year cut their holdings of riskier assets such as bonds of U.S. agencies Fannie Mae and Freddie Mac.

"Now this share (of treasuries) will fall because the window of opportunity is opening, the situation with banks is becoming clearer," Ulyukayev said. "We will increase the share of bank deposits, the share of repos will be bigger as well."

He said Russia would not immediately sell its treasury holdings but would rather wait until the securities mature, gradually replacing them with other assets. Russian officials earlier said they were concerned about U.S. inflation.

Russia earlier pledged to buy about $10 billion worth of bonds to be issued by the IMF as part of a fundraising effort to help countries hit by the global financial crisis but there is no firm timetable for such an issue.

Russia increased its investment in liquid treasuries during the peak months of the crisis to have the money readily available to support the rouble and is ready to retrace those moves now that the pressure on the rouble has eased.

The country keeps most of its sovereign debt holdings in short-term paper. It took the country less than a year to cut its position in papers of Fannie and Freddie from $100 billion to virtually zero.

NEGATIVE FOR THE DOLLAR

The dollar slipped against a range of currencies, while U.S. Treasury yields rose after news of the Russian statement. The dollar index fell as low as around 79.483 after the news from 79.662 shortly before the comments.

U.S. Treasuries fell further after the comments, pushing up the benchmark 10-year T-note yield more than five basis points to a session high of 3.92 percent.

"This is potentially quite negative for the dollar," said Geoff Kendrick, senior currency strategist at UBS in London.

"The main jump was in sterling ... If anyone just now would benefit it would probably be investments into sterling as a reserve currency."

Russia, the world's second largest oil exporter, has been pushing for a rethink on the dollar's status as the world's reserve currency of choice and plans to discuss the dollar's role with BRIC group partners Brazil, India and China at a summit next week.

Alexei Miller, chief executive of Russia's gas export monopoly Gazprom, called at a conference in Italy for a reform of "a system linking oil prices to only one currency" in favor of a multi-currency settlement system.

Ulyukayev said Russia could also consider including assets denominated in China's yuan but only after Beijing liberalizes its capital account transactions, making the yuan a convertible currency.

"As soon as the Chinese authorities deem the capital account liberalisation acceptable, the yuan will be in demand... I do not know how much time is needed for that," Ulyukayev said.

(Reporting by Yelena Fabrichnaya, writing by Gleb Bryanski; editing by Patrick Graham)

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