Russia Set to Reduce US Treasury Exposure

Today is the much dreaded day of 10-year Treasury note auction. In anticipation of not so steller result (particularly after Chinese students laughed at the US Treasury Secretary), the yield on 10-year note has popped above 3.9%, and the 30-year bond yield is 4.71%.

The stock market is also under pressure, probably from this impending auction. Dow Jones Industrial Average is down about 30 points to 8,732, S&P 500 down 4 to 937. Nasdaq is the worst performer, down 22 points (-1.21%) to 1,837.

The bond market doesn't need any more negative news right now, but it got one this morning. It came from Russia, the 5th largest foreign holder of US Treasury securities. (If you exclude Carribean Banking Centers and Oil Exporters, Russia is the third largest holder. Here's the link to the lateset TIC from the Treasury Department.

Russia to Sell US Treasurys, Buy IMF Bonds (6/10/09, CNBC):

"Russia will reduce the share of U.S. Treasurys in its foreign exchnage reserves, the world's third-largest, a senior central bank official said on Wednesday, driving the dollar broadly lower."

"Russia holds about 30 percent of the reserves, worth $404.2 billion, in Treasurys. Central bank First Deputy Chairman Alexei Ulyukayev said it would buy bonds issued by the International Monetary Fund and also up the share of reserves held in bank deposits."

"Ulyukayev said Russia had increased its investment in liquid treasuries during the peak months of the crisis and was now ready to cut it...."

Ouch.

The Russian holdings of US-dollar denominated assets including Treasuries and agency bonds fell to 41.5% as of Jan 1, 2009, from 47% a year earlier. Their Euro holdings increased from 42.4% to 47.5% during the same period, but as the net position, US dollar was still 47%, Euro 41%. (See this article for more detail.)

Russia also holds 523.7 tonnes of gold reserve, 4% of the total reserve. Russia and China already expressed interest (see my post) in yet-to-be-issued IMF bond/note.

One more hour to go before Treasury announces the auction result...

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