Felix Salmon

Switching from Treasuries to IMF bonds

By Felix Salmon
June 10, 2009

The buzz du jour seems to be surrounding the good-news-bad-news coming out of Russia. The good news is that the Russians seem willing to pitch in to buy some of these IMF “bonds” (which aren’t really bonds at all, they’re more like loans, seeing as how only sovereigns can buy them and they won’t be traded anywhere). The bad news is that Russia is simultaneously saying that in order to raise the money to buy the bonds, they’ll sell some of their Treasury holdings.

If I had to guess at how all this is going to play out, I’d say that

  • any bond purchases by Russia will be so small (on the order of $10 billion or so) that they would make no difference at all to the Treasury market;
  • any IMF bonds will be denominated in dollars, not SDRs, and as a result there will be no extra currency diversification of sovereign FX reserves;
  • in general this whole question of the IMF issuing bonds is going to turn out to be a non-issue as far as the big picture of international capital flows is concerned.

That said, my colleague Richard Baum passes along this chart of official Treasury holdings; it doesn’t include things like sovereign wealth funds, but does show that Russia is really not nearly as important, when it comes to such things, as China and Japan. If either of them start selling off their Treasuries, the effects on the secondary market might be significant.


7 comments so far | RSS Comments RSS

What’s the seasonal issue with U.K. holdings?

Posted by Mitch | Report as abusive

“He said Russia would not immediately sell its treasury holdings but would rather wait until the securities mature, gradually replacing them with other assets. Russian officials earlier said they were concerned about U.S. inflation.”

This sounds like he’s saying that, in the Flight to Safety, they bought short term US bonds, and that, now that conditions are easing, they’re going to move out of that strategy. When the bonds mature, there’s nothing stopping them from buying US bonds other than low interest rates.

“Russia holds around 30 percent of its reserves in treasuries after central bank asset managers last year cut their holdings of riskier assets such as bonds of U.S. agencies Fannie Mae and Freddie Mac.”

This was the Flight to Safety. Still unexplained, at least to me, is why Agency Bonds, which I took to be Explicitly Guaranteed in fact, were not considered to be so by the world community.In any case, once the flight is over, we should expect investors to move some money out of these safer investments.

“Russia increased its investment in liquid treasuries during the peak months of the crisis to have the money readily available to support the rouble and is ready to retrace those moves now that the pressure on the rouble has eased.”

I think that’s what I just said.

“This is potentially quite negative for the dollar,” said Geoff Kendrick, senior currency strategist at UBS in London.”

Yes, well, I guess that we should want a continuing Flight to Safety then. What’s the point of his statement? I don’t see the ominous signs in this story.

By the way, everyone should take a look at the Reuters post on the Arms Trade In Somalia.


China has increased its holdings by 50% in the last YEAR?

Posted by right | Report as abusive

Well according to Bloomberg story, IMF bonds will be denominated in SDR and will pay yield similar to US Treasuries. SDR is 44% weighted in US dollars, so Russia and Brazil are cutting 56% exposure to dollar on $20 billion ($11.2 billion). Here is the link http://www.bloomberg.com/apps/news?pid=2 0601087&sid=a_znw8oxnBzs

In addition, IMF’s ability to pay back is higher interest obtained from borrowing developing countries. I cant think of anyway, IMF’s credit is better than US.

Posted by Jahan | Report as abusive

“What’s the seasonal issue with U.K. holdings?
- Posted by Mitch”

Isn’t it the fact that a lot of non-UK official buyers stash their USTs in London and that gets corrected on a realy basis?

Posted by Carlo | Report as abusive

*yearly basis.Sorry.

Posted by Carlo | Report as abusive

Press Release:

IMF Managing Director Dominique Strauss-Kahn Welcomes Brazil’s Intention to Invest Up To US$10 Billion in Notes Issued by the IMF

http://www.imf.org/external/np/sec/pr/20 09/pr09207.htm

Posted by Matthew | Report as abusive

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