NEW YORK This week's record decline in foreign holdings of U.S. Treasuries has led some to speculate that Russia has been cutting its dollar reserves ahead of possible sanctions from the West due to its role in the Ukraine crisis.
Foreign central banks sold an eye-popping $104.5 billion in Treasuries this past week - more than three times the previous record. Suspicions have centered on Moscow, but it is possible that other major holders of U.S. debt, such as China and Japan, could have been big sellers as well.
"The speculation is that Russia is reducing its Treasuries holdings ahead of any possible sanctions," said Shaun Osbourne, chief foreign exchange strategist at TD Securities in Toronto.
A definitive answer will not be available until official data on holdings is released in the next couple of months.
Russia held $139 billion in Treasuries, making it the 11th largest holder of U.S. government debt, at the end of 2013. The speculation is that Moscow, in efforts to support the ruble as well as shift away from U.S. assets to avoid sanctions, cut its holdings dramatically.
A vote is scheduled for Sunday in Ukraine's Crimea region, where it will decide whether or not to join Russia. The West has called the referendum illegal. Tension between the two countries has risen since the ouster of Ukraine's pro-Russia president late last month.
The Russian central bank would not comment, except to say that "data on the central bank's foreign currency assets are published no earlier than six months after the end of the period under review, which is conditioned by the sensitivity of prices on the world financial markets to the moves by the largest market participants, including the Russian central bank."
The Russian central bank has spent about $16 billion so far in March to support its currency, which fell to a record low of 36.708 rubles against the dollar on Friday.
Some analysts reckoned Moscow simply shifted its Treasuries holdings outside the United States rather than dumping them on the open market.
"Rather than selling the Treasuries Russia simply transferred them from the Federal Reserve out of the U.S.," Marc Chandler, global head of currency strategy with Brown Brothers Harriman, wrote in a research note.
What has perplexed the market is that if Russia slashed its Treasuries holdings in preparation of possible a freezing of its U.S. assets and other sanctions, the move has not materialized in weakness in the bond market.
Instead, benchmark U.S. yields fell this week due partly to safe-haven buying of Treasuries over anxiety of a war in Ukraine as Moscow launched new military exercises along the border with the former Soviet republic.
The U.S. 10-year Treasury yield was 2.636 percent midday Friday, and poised to fall 0.15 percentage point on the week for its biggest weekly decline in 9-1/2 months.
REASONS IN CHINA AND JAPAN
While Russia is seen as making the heaviest shift away from Treasuries, analysts cited China and Japan, the two biggest U.S. creditors, as other possible culprits.
China might have pared its $1.27 trillion in Treasuries to help shore up its wobbly financial sector in the aftermath of its first private bond default last week, analysts said.
"It could be raising cash to help stabilize its credit market," said Christopher Low, chief economist at FTN Financial in New York.
The growth in Chinese corporate debt has exploded since the global financial crisis. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 percent to 4.74 trillion yuan ($777.3 billion) between December 2008 and September 2013.
Some analysts said Beijing was unlikely to hold the answer to questions about the big drop in U.S. bond holdings, however.
"There's no sign any (China) bailout has happened and there are no signs that bondholders have taken any action," said Komal Sri-Kumar, president of Sri-Kumar Global Strategies in Santa Monica, California.
On Thursday, Chinese Premier Li Keqiang said on the final day of China's yearly parliament, "We are reluctant to see defaults of financial products, but some cases are hard to avoid."
He added: "We must enhance oversight and solve problems in a timely way to ensure no systemic and regional risks."
As for Japan, which holds about $1.18 trillion in Treasuries, data show the world's third biggest economy has been cashing out its overseas bond holdings and sending the money back before its end of its financial year on March.
According to the latest data from Japan's Ministry of Finance, Japan's foreign bond holdings fell by 618.5 billion yen ($6.12 billion) from March 2 to March 8, following a 759.0 billion yen ($7.52 billion) drop the prior week.
(Additional reporting by Lidia Kelly in Moscow; Editing by Tom Brown)