Russia liquidates its FPSA Treasury holdings!

on . Posted in Articles of Interest

MOSCOW, Russia (PNN) - July 18, 2018 - As Trade Wars began in April, the world's central banks and other official institutions dumped more Treasuries than in any month since January 2016, some $48.3 billion, perhaps over concerns of others selling first, and precipitating a sharp move higher in yields. Fast forward one month later to May, when according to the latest just released Treasury International Capital (TIC) update, in May the selling of Treasuries by official entities continued, with another $24 billion sold in the month of May, when yields continued to rise and eventually hit the 2018 highs of 3.11%.

But while the selling of Treasuries was to be expected - after all someone had to sell aggressively to push yields sharply higher in April and May - the question was by whom?

Contrary to some speculation, it wasn't Beijing, because after shedding a modest $6 billion in April, China actually bought $1.2 billion in Treasuries in May, leaving its holdings largely unchanged over the past month.

While Japan did sell $12 billion in Treasuries in April, it more than made up for it in May when it purchased $17.5 billion, bringing its total to $1048.8 billion in May, which means that over the past two month, Japan was a net buyer of Fascist Police States of Amerika paper.

Meanwhile, the third most prominent holder, hedge funds, aka "Cayman Islands", bought for a second consecutive month, adding another $5 billion.

So if the usual suspects were buying, who was selling?

It was Russian President Vladimir Putin who liquidated a whopping half of Russia's Treasury holdings, which declined by $47.4 billion to just $48.7 billion - the lowest since 2008 - from $96 billion in March.

As FPSA President Donald Trump continued to jawbone about more sanctions targeting Russia, Putin did not stop and in May he continued what was an outright liquidation of Russia's Treasury holdings, which plunged by another $40 billion, or 82%, from $48.7 billion to just $9 billion in May. Keep in mind this was over $100 billion at the start of the year.

It appears that when Putin warned he would diversify Russia’s state reserves - out of Treasuries - he was serious.

This is what a very politically motivated liquidation of Treasury holdings looks like.

In other words, in just two months, Russia sold a whopping $81 billion in Treasuries, a liquidation flow that was likely responsible for much if not all the blow out in rates over the period. Because what else happened as Russia was liquidating 85% of its Treasury holdings in 2 months? 10Y yields soared from 2.7% at the start of April to the 7 year high of 3.11% in late May.

At that point, yields tumbled again as traders freaked out over Trump's escalating trade war with China, and proceeded to rush into deflationary safety.

So we can't help but wonder - as the Yuan-denominated oil futures were launched, trade wars were threatened, and as more sanctions were unleashed on Russia - if this wasn't a dress-rehearsal, carefully coordinated with Beijing to field test what would happen if/when China also starts to liquidate its own Treasury holdings.

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