Risk protection: why Russia has reduced investments in the US public debt

Russia has sharply reduced investment in US government bonds (treasury bonds). This is evidenced by the US Treasury. According to the materials of the department, in December 2019, the total amount of Russian investments in treasury securities of the United States decreased by $ 1.5 billion - up to $ 9.97 billion.

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.

According to the US Treasury, today in the total amount of US debt ($ 23.3 trillion) about 29% falls on treasury bonds.

Note that at the end of 2019, Russian investments in US government bonds decreased by 24.5%, and over the past two years - more than ten times. As QBF's leading analyst Oleg Bogdanov explained to RT, the Central Bank is trying to secure Russia's foreign exchange reserves by refusing treasuries.

“Two years ago, against the backdrop of an aggravation of the sanctions agenda, a systemic risk arose. The United States could introduce restrictions against the Russian banking system and freeze Central Bank funds placed in Treasury. As a result, the Central Bank began to actively withdraw from the US state debt, since there was a threat to lose this money, ”Bogdanov explained.

The sharp sale of US government bonds occurred 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.

It is noteworthy that simultaneously with Russia, American government bonds are also selling China. In December 2019, the Asian Republic reduced investments in treasuries by $ 19.3 billion - to $ 1.07 trillion. The value has become the lowest since February 2017.

In general, in 2019, Chinese investment in treasury bonds fell by almost 5%, and in June, China lost the status of the main holder of the US government debt. Experts associate the actions of the Asian republic with the trade war between China and the United States.

Recall that 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, US technology companies began to stop cooperation with the Chinese company Huawei. However, in the fall, the states resumed dialogue, and already in January 2020, they agreed to end the tariff war and signed the first part of the trade deal.

However, experts still do not rule out another aggravation of relations between the two states. According to Vyacheslav Abramov, director of the BCS Broker sales office, RT, in this case, China could further reduce investment in the US public debt as a lever of pressure on Washington.

“One of the reasons China can continue to cut back on its US government debt is because of a deal.” Thus, the Chinese side can use its investments in treasury as a way to achieve the necessary goals in the course of further negotiations with the States, ”Abramov emphasized.

Note that today the largest holder of the US public debt is Japan. Meanwhile, in December, Tokyo also reduced its investment in US government securities by almost $ 6 billion - to $ 1.155 trillion.

As Artyom Deyev, head of the AMarkets analytical department, explained in an interview with RT, the mass rejection of investments in treasury may partly be related to the emerging slowdown in the American economy.

“The US economy in many ways is not in good shape. It is still too early to talk about stagnation or crisis, but the situation in the United States is not so stable as to keep a large amount of funds in the treasury. Therefore, different countries, including Russia and China, are reducing their investments in American paper assets, ”said Deev.

Moreover, analysts also note that lately investments in treasury have become less and less profitable for investors. According to the US Treasury, over the past year, the yield on US government securities with a ten-year maturity has fallen from 2.6 to 1.5% per annum.

Experts attribute the fall in yield to the Treasury 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.