| NEW YORK, March 14
NEW YORK, March 14 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
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 rouble as
well as shift away from U.S. assets to avoid sanctions, cut its
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 roubles 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
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
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.