Thread: Markets fear Russia has cut US treasury bill holding over Ukraine crisis $100B Xferr

Phillip Inman
The Guardian, Friday 14 March 2014 15.51 EDT

The Russian central bank is likely to be behind the move, though wealthy Russian business figures are also expected to be concerned that Washington-imposed sanctions will freeze funds they have parked with the US central bank.

Markets fear Russia has cut US treasury bill holding over Ukraine crisis
Transfer of more than $100bn out of US prompts speculation Russia is moving funds out of reach of possible sanctions


The Russian foreign minister, Sergei Lavrov, and US secretary of state, John Kerry, in London. Talks on Ukraine ended without agreement. Photograph: Demotix Sourced/Corbis

Financial markets were on high alert last night over the Ukraine crisis amid speculation that the Kremlin had pulled its vast US treasury bill holdings out of New York.
News that more than $100bn had been shifted out of the US in the past week – at least three times more than at any time since the financial crisis – prompted fears that Russia is preparing for a western backlash in the form of sanctions and is moving its funds to safe havens beyond US influence.

The bills were transferred out of the US central bank's deposit vaults last week, as the Obama administration increased the threat of sanctions in response to the growing crisis in east Ukraine. Last year the most moved in a week was $32bn. Analysts said that if the switch can be credited to Russia, it represents about 80% of the country's holdings in US Treasury bonds.

The Russian central bank is likely to be behind the move, though wealthy Russian business figures are also expected to be concerned that Washington-imposed sanctions will freeze funds they have parked with the US central bank. Alexei Miller, the boss of energy firm Gazprom, and Igor Sechin, who runs oil company Rosneft, are likely to be among the many senior figures in Moscow adversely affected by any targeted sanctions imposed on Russia.

The switch came to light after the US central bank reported that its weekly custody holdings of Treasury bonds – investments it keeps on behalf of outside investors – dropped $105bn for the week ending 12 March to $2.85tn from $2.96tn.

http://www.theguardian.com/business/...d&CMP=SOCxx2I2

Fed Custody Holdings Record Decline Fuels Russia Speculation
By Susanne Walker Mar 14, 2014 3:21 PM CT

Treasuries held in custody at the Federal Reserve by foreign central banks dropped by... Read More

A drop in U.S. government securities held in custody at the Federal Reserve by the most on record is fueling speculation that Russia may have shifted its holdings out of the U.S. as Western nations threaten sanctions.

Treasuries held by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, according to Fed data released yesterday, as the turmoil in Ukraine intensified. As of December, Russia held $138.6 billion of Treasuries, making it the ninth largest country holder. Russia’s holdings are about 1 percent of the $12.3 trillion in marketable Treasuries outstanding, according to data compiled by Bloomberg.

“The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. in a telephone interview. “If Russia did it, then they may have transferred the holdings to another bank outside of the U.S.”

Crimea is preparing for a March 16 referendum on splitting from Ukraine after Russia seized the peninsula. Secretary of State John Kerry warned Russia that the U.S. and Europe could take serious action after the referendum should there be no sign of a resolution to the Ukraine crisis.
Diplomatic Efforts

Kerry, who told a Senate panel in Washington that “nobody doubts” Crimea will vote to leave Ukraine, met with Russian Foreign Minister Sergei Lavrov in London today.

“Escalating talk of sanctions over the Ukraine conflict would give it every reason to move those holdings to an off-shore custodian,” according to Wrightson ICAP, referring to Russia.

The previous biggest drop in Fed custody holdings was $32 billion in June after the central bank indicated they may reduce purchases of Treasuries. Andrea Priest, a spokeswoman for the Fed Bank of New York, declined to comment.

“How much more room it has to go depends on who’s doing the shift,” said Shyam Rajan, rates strategist in New York at Bank of America Corp. “It could just be a shift in where they hold Treasuries as opposed to outright selling. If they had sold we would have been much higher in yields this week. We’ve seen a rally.”
Bank Rossi

A spokeswoman for Russia’s central bank said it hasn’t disclosed changes in its foreign-asset holdings.

http://www.bloomberg.com/news/2014-0...eculation.html
“Bank Rossii publishes data on managing foreign-currency assets not earlier than six months after the given period because of the high sensitivity of prices on global financial markets to the actions of largest market participants, including the Russian central bank,” Anna Granik, a spokeswoman for Moscow-based central bank, said in an e-mailed response to questions.

The decrease in custody holdings at the Fed spurred speculation Russia may have moved to raise funds to defend its currency as the turmoil worsens. The ruble has declined 10.3 percent against the dollar this year and reached a record low 36.9 per dollar on March 3. It declined 0.2 percent today to 36.6.

“If they were selling to defend the currency, the market would have felt the impact on yields more substantially,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA.
Market Size

Foreign holdings of Treasuries totaled a record $5.79 trillion at the end of last year, according to Treasury data released in February. Fed holdings for its own account were $2.2 trillion. The U.S. central bank has begun tapering its monthly purchases of Treasuries to $35 billion as it winds down monetary stimulus that was designed to help foster economic growth.

China, the biggest foreign U.S. creditor, held $1.27 trillion of U.S. government bonds as of December. Japan is the second-largest holder at $1.18 trillion.

The 10-year note posted the biggest weekly gain in almost two years, with the yield dropping as much as 18 basis points. The yield was little changed today at 2.65 percent, according to Bloomberg Bond Trader prices.

“On the margin, it’s a net negative for the Treasury market because it’s a reminder that there’s a potential seller of Treasuries for non-monetary reasons,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “If the market believed they were going to do it, Treasury yields would not be at 2.65 percent.”