Value of U.S. Treasury Securities Held by Russians Is Down 55.49% Since the Beginning of the Year

Russia has been holding a reputation as a large holder of U.S. debt. Yet, the country’s government has been reducing the U.S. Treasury Security in its possession. According to an analysis by MoneyTransfers.com, Russian holdings of the U.S. Treasury securities dropped by $55.49% from January to May. The treasury security fell from $4.503 billion to $2.004 billion since the year began.

Speaking on the data, MoneyTransfers.com CEO remarked:

Effects of the Ukraine War

Russia’s actions in the Treasury market reflect the growing outrage over Moscow’s invasion of Ukraine.  The United States has sanctioned several Russian individuals and entities in response to the crisis. These sanctions have made it more difficult for Russia to do business with American companies and banks. As a result, Russia may be increasingly trying to reduce its exposure to the United States.

Still, The U.S. first made an exception to sanctions for the Russian central bank to pay bondholders through the U.S. and international banks.

Later, the U.S. Treasury declared that it would prevent the Russian government from using U.S. institutions to pay bondholders.  This decision was made to put more pressure on the Kremlin and make it harder for Russia to finance its debt.

The U.S. sanctions have caused problems for Russia’s economy and its ability to borrow money.  In response, Moscow has been trying to sell off its holdings of U.S. Treasury securities. This move will help Russia to avoid any future problems with sanctions and also allow the country to diversify its foreign reserves.

Russia’s actions in the debt market show that the country is feeling the effects of sanctions from the United States. The data also suggests that Moscow is trying to reduce its reliance on the American economy.

Impact on the Market

In May, bond specialists warned that an increase in Treasury issuance would lead to higher long-term rates; however, most of the surplus resulted from record large Treasury auctions rather than sales from Moscow.

While the Russians’ liquidation is intriguing, the amount they owned and sold represents a small part of the multi-trillion-dollar Treasury market. This is primarily the result of sanctions and portfolio adjustments and has little to do with a genuine market movement. The lack of or subdued market activity pretty much sums up the change.

In the short term, however, it appears that the Russians’ selling has had minimal impact on prices or yields. This is likely due to the fact that global central banks are still actively buying Treasuries as part of their quantitative easing programs.  In other words, while the Russians may be selling, there are other investors more than willing to step in and take their place.

In the long term, however, it’s possible that Russia’s selling could have a more significant impact on the market. If Moscow continues to sell its holdings, it could cause yields to rise and prices to fall. This would be bad news for American borrowers, who would see the cost of borrowing increase.