Russia may swap Treasuries for IMF debt


By Alex Nicholson
Bloomberg News
Wednesday, June 10, 2009

MOSCOW -- Russia's central bank said it may cut investments in U.S. Treasuries, currently valued at as much as $140 billion, a week after China said it may reduce reliance on the dollar and American bonds.

Treasuries fell after Alexei Ulyukayev, first deputy chairman of Bank Rossii, said some reserves may be moved into International Monetary Fund debt. The yield on the 10-year note rose six basis points, or 0.06 percentage point, to 3.92 percent as of 8:27 a.m. in New York, according to BGCantor Market Data.

Finance Minister Kudrin said on May 26 Russia will buy $10 billion of IMF bonds from the reserves and China may buy as much as $50 billion, IMF Managing Director Dominique Strauss-Kahn said yesterday. Some investors are wary of U.S. assets because the budget deficit is projected to reach $1.75 trillion in the year ending Sept. 30 from last year’s $455 billion, the Congressional Budget Office says.

"The bigger picture is people are worried there are too many Treasuries, and that no one is even making a pretense of getting the fiscal deficit under control," said Francis Beddington, co-founder of Insparo Asset Management, which oversees about $140 million in London. By Andre Soliani and Telma Marotto

Brazil will use part of its reserves to provide $10 billion in financing to the IMF, Finance Minister Guido Mantega said in Brasilia today.

Bond investors have driven up the yield on the benchmark 10-year Treasury note, which helps to set rates on everything from mortgages to corporate bonds, to 3.94 percent from the record low of 2.035 percent in December. The rate is still below the average of 6.49 percent over the past 25 years, and will likely stay below 4 percent through at least the first quarter of next year, according to the median estimate of 57 economists surveyed by Bloomberg.

Treasury Secretary Timothy Geithner said in Beijing on June 2 there will be enough demand for record sales of U.S. debt. He met with Chinese officials after Premier Wen Jiabao called in March for the U.S. "to guarantee the safety of China's assets" and central bank Governor Zhou Xiaochuan proposed a new global currency to reduce reliance on the dollar.

China, Russia, and Brazil are among a handful of nations that have expressed interest in purchasing the securities.

China is "actively" considering buying as much as $50 billion of the IMF bonds, the State Administration of Foreign Exchange said last week.

IMF securities would give countries a different way to contribute to the fund and are unlike traditional bonds because they pay an interest rate pegged to the IMF’s basket of currencies, known as Special Drawing Rights.

Ulyukayev said Russia will cut the share of U.S. Treasuries "because a window of opportunity for working with other instruments is opening," according to Interfax news wire. Russia may also place more of the reserves in deposits with foreign banks, he said. The remarks were confirmed by a Bank Rossii official who declined to be named, citing bank policy.

Maxim Oreshkin, head of research at OAO Rosbank in Moscow, said the shift into IMF debt won't happen immediately.

"The central bank has never stood out for making fast moves with its reserves," Oreshkin said. "If it changes certain groups it will happen smoothly." Investing in the IMF may bring "political dividends" for Russia as it 'raises the role of Russia in the IMF."

Still, Brazil, Russia, India, and China increased foreign reserves by more than $60 billion last month to limit currency gains as the first global recession since World War II restricted exports, data compiled by central banks and strategists show. Russia added the most foreign exchange since July.

President Dmitry Medvedev questioned the U.S. dollar’s future as a global reserve currency last week and said that using a mix of regional currencies would make the world economy more stable. He renewed his call for consideration of a supranational currency to challenge the dollar.

The IMF, which has rescued economies from Pakistan to Iceland in the past year, has never issued bonds and is seeking more cash to finance loans and aid to member countries during the worst economic slump in the fund’s 64-year history.

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

To contribute to GATA, please visit: