Why Russia Is Dumping US Treasury Bonds?
Ever since Russia dropped out of the list of the 30 largest holders of US bonds in May 2018, it has been moving towards a gradual reduction of its investment in them, Russian media reported.
While it remains unclear who is buying its Treasury holdings, Moscow, once a top investor, has been steadily dumping US bonds for months now amid efforts to boost its gold reserves.
US Treasury Securities, marketable, fixed-interest government debt issued by the US Treasury Department, are used to finance a country’s public debt, according to Russian media.
Treasuries, which technically include bills, notes, and bonds, are all backed by “the full faith and credit of the US government”, and can all be purchased either directly from the department or via a broker. The major difference among the three varieties is the time investors need to wait to pay the principal: for instance, Treasury bills mature in one year or less; Treasury notes are issued with maturities from two to ten years, while bonds are long-term investments that have maturities of 10 to 30 years from their issue date.
Trading allows the US government to receive additional funds to finance government spending in the event of a large budget deficit – $119.7 billion in July 2019. The total US budget deficit for the 2018 fiscal year amounted to $779 billion – the largest figure in six years, as multiple media outlets noted, and this year it is expected to exceed $1 trillion.
Investors, in turn, ensure the safety of reserve funds. The yield on US securities is relatively low, but since the United States is one of the world’s largest economies, this allows it to count on a guaranteed refund under any conditions, Sputnik News wrote.
Russian investments in US bonds peaked in 2010 – at the time they exceeded $170 billion, but have since significantly plummeted as the government moved to diversify its international reserves. At the beginning of 2018, they dropped below $100 billion – to $96.9 billion, while in April investments decreased to $48.7 billion, and in May were cut to $14.9 billion. As of June, Russia’s US Treasury holdings amount to $10.85 billion – the lowest figure since the spring of 2007.