Switching from Treasuries to IMF bonds

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.



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