Russia ditched billions of US bond holdings for gold

Russia is reported to have been radically dumping US bond holdings in a way seldom seen in global markets as it prepares to protect itself from American sanctions.  

Analysts polled by RT said the move was mainly taken due to fears that the US could freeze Russian-owned bonds once tensions between the two countries deteriorated.

Withdrawing assets from the US could also be part of a strategy by Moscow to diversify its financial resources and make re-investments into Chinese bonds as well as gold, others said.  

Data released by the US Treasury this week showed that Russia, which once ranked among the top 10 foreign holders of US Treasury securities, by May had sold off all but about $15 billion of that debt -- down from nearly $100 billion in March, according to media reports.

As it has sold off Treasury securities, Russian Central Bank statistics show that the country has shifted into buying large amounts of gold, with Russia recently overtaking China as the world's biggest holder of gold, with $80.5 billion in holdings.

The unusually rapid selloff of US bonds -- which many analysts are attributing to rising US-Russia tensions and in particular, US sanctions imposed on Russian billionaires this year -- caused Russia to fall below the $30 billion threshold for being included on the Treasury's list of its "major bondholders."

“Both political and economic reasons could be found here. The Central Bank may have thought that Russia-owned Treasuries could be frozen because of geopolitical tensions. The regulator announced in spring that it plans to diversify its reserves,” said Zhanna Kulakova, financial consultant at TeleTrade.

Russia owned as much as $176 billion in US debt in 2010, according to Treasury figures. However, it began unloading its US holdings after former US President Barack Obama started imposing sanctions on Moscow over its aggression in Ukraine in 2014, according to various media reports.

The sanctions have continued and increased under the administration of US President Donald Trump, who under a sanctions law enacted last summer announced new measures earlier this year targeting 38 individuals and organizations that benefit from close ties to Putin -- including seven Russian oligarchs and 17 government officials.

Nearly half of the Russian selloff occurred since those sanctions were imposed in April.

A $30 billion to $40 billion drop in US Treasury security holdings by a foreign country during a one-month time period is significant, but not unprecedented, Boris Rjavinski, a financial strategist at Wells Fargo bank, told USA Today.

China's holdings of US Treasuries declined by roughly $200 billion over several months when the country was going through a currency exchange adjustment process a few years ago, Rjavinski added.

The market size for the Treasury is more than $15 trillion, large enough to absorb such changes, he emphasized.

China, which holds $1.2 trillion of US debt, remains the top holder of US Treasuries, followed by Japan, Ireland, Brazil, and the United Kingdom.