"Strategic step": Russia has reduced investments in US public debt to a minimum since 2007
As it became known on September 18, in July 2019, Russian investments in the US public debt decreased to $ 8.5 billion - the lowest level over the past 12 years. Thus, the Central Bank is trying to secure Russia's foreign exchange reserves. Experts do not exclude that in the event of growing geopolitical tensions, the States may freeze foreign funds in their accounts. The yield on US government bonds is declining, so investment in securities is becoming less attractive to foreign investors. In addition to Russia, China is gradually abandoning the American public debt.
Russia has record-breaking investments in US government bonds (treasuries). This is evidenced by the US Treasury. According to the agency, in July 2019, the volume of Russian investments in US treasury securities fell by $ 2.3 billion to $ 8.5 billion. The value was the lowest since April 2007.
Treasury of the US Treasury Department is a debt guarantee guaranteed by the government. States buy securities and receive stable income on them. In other words, holders of government bonds lend their money to the American economy.
Today, in total US debt ($ 22.5 trillion) about 29% falls on treasury bonds. This is evidenced by the data of the US Ministry of Finance and the portal Usdebtclock.org.
Note that since the beginning of 2019, Russian investments in US government bonds have decreased by almost 35%. As QBF lead analyst Oleg Bogdanov said in an interview with RT, the Central Bank is trying to secure Russia's foreign exchange reserves by refusing treasuries.
“For any country that holds reserves in dollars, it is more profitable to invest them in bonds with yield. But in the event of an aggravation of the geopolitical situation, the United States can simply freeze these funds. Therefore, our Central Bank took this strategic step and, starting last year, began to actively withdraw from the US state debt, ”Bogdanov explained.
The sharp sale of US government bonds began in the spring of 2018. Then, from March to May, investments decreased by more than six times - from $ 96 billion to $ 14.9 billion, as a result of which Russia was one of the largest holders of US government debt.
According to Oleg Bogdanov, after the sale of treasuries, the Bank of Russia exchanges dollars for euros and invests reserve funds in debt securities of the EU countries. As a result, according to the results of 2018, the share of the US national currency in Russian reserves fell by half - from 45.8% to 22.7%. At the same time, the share of the euro increased from 21.7% to 31.7%.
It is noteworthy that simultaneously with Russia, American government bonds are also selling China. In July, the Asian Republic reduced investments in treasuries by $ 2.2 billion - to $ 1.11 trillion.
In general, since the beginning of 2019, Chinese investments in treasury bonds have decreased by 1.4%, and in June the PRC left the list of the largest holders of the US government debt. According to RT analysts interviewed, in the coming months, Beijing and Moscow will continue to gradually abandon US government securities.
“The withdrawal of Russia and China from US debt securities is a natural process. We see that the yield on the treasuries, both real and nominal, continues to decline this year. This, accordingly, makes American debt a less attractive tool for generating income, ”said Anton Pokatovich, chief analyst at BCS Premier, in an interview with RT.
According to the U.S. Treasury, since January 2019, the yield on U.S. government securities with a ten-year maturity has fallen from 2.6% to 1.8%. At the same time, in early September, the indicator fell to 1.4%, the lowest level over the past three years.
Analysts attribute the fall in yield to the Treasuries to a change in the policy of the US Federal Reserve. In 2018, the American counterpart of the central bank was actively raising its interest rate. However, after the increased risks of a recession in the country, in the summer of 2019, the Federal Reserve began to reduce the rate. Traditionally, such a measure stimulates economic growth, but in the long run makes investments in dollar assets less attractive to investors.
“Following the results of the regular meeting on September 18, the Fed will surely lower the rate again. This may serve as the beginning for a long cycle of lowering rates, and it is quite possible to expect that the yield of the treasuries will fall to 1%, ”added Oleg Bogdanov.
According to analysts, by withdrawing from the US public debt, China and Russia are trying to secure their own reserves. The reason for such actions was the intensification of the trade war between Beijing and Washington.
“China will continue to gradually decrease the volume of treasuries purchased. Beijing will be holding up the possibility of a sharp sale of government securities until the situation with the trade conflict is completely out of control, ”said Anton Pokatovich.
The trade confrontation of the two largest economies in the world began in 2018. Washington accused Beijing of illegally acquiring American technology and increased duties on Chinese goods imported into the country. China introduced a response.
In early 2019, the parties sat down at the negotiating table, but already in May, Washington went to aggravate the conflict. In addition to the introduction of new duties, American technology companies began to stop cooperation with the Chinese company Huawei.
In August, countries again failed to agree on the terms of a trade deal and reiterated the introduction of mutual restrictions. After failed negotiations, China may use the abandonment of the Treasuries as a lever of pressure on the United States. About this in an interview with RT said the head of the analytical department of AMarkets Artyom Deev.
“For China, the Treasury is not only an investment tool, but also a lever of pressure on the United States. Mass sales of public debt can lead to a depreciation of the dollar and even a smooth destabilization of the US economy, ”concluded Deev.