Posted on 06/10/2009 9:06:10 AM PDT by mikelike
(Excerpted from the 3rd result of the Google Query -"Russia swap US Treasuries")
Russia may switch some of its reserves from U.S. Treasuries to International Monetary Fund bonds, the central bank said today. The comment drove Treasuries and the dollar lower.
Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said some reserves may be moved from Treasuries into IMF debt, reiterating comments made last month by Finance Minister Alexei Kudrin. Ulyukayev’s remarks were confirmed by a Bank Rossii official who declined to be named, citing bank policy.
Treasuries fell, pushing 10-year yields toward the highest level in seven months, in response to Ulyukayev’s statement. The dollar fell against the euro on speculation that Russia will reduce its holdings of U.S. debt.
About 30 percent of Russia’s international reserves, which stood at $401.1 billion on May 29, are currently held in Treasuries, Ulyukayev said. Kudrin said on May 26 that Russia planned to buy $10 billion of IMF bonds using money from its foreign reserves.
The 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.
China is expected to buy as much as $50 billion of the bonds, IMF Managing Director Dominique Strauss-Kahn said yesterday.
The IMF, which has rescued economies from Pakistan to Iceland in the past year, has never issued bonds before 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.
(Excerpt) Read more at google.com ...
I’m not sure the IMF is any better an investment, but to each their own.
I think this is sending a signal before tomorrow’s big bond sale. No one wants our stuff. Russia is publicly demonstrating this, perhaps to encourage China’s refusal to buy US bonds tomorrow.
House of cards.
Their shift is tiny and their reserves themselves small. They are just grandstanding about it if an effort to support their currency.
Let’s hope so.
First one out gets out whole. And that's about it.
This, of course, is economic warfare and we are unarmed.
This is nonsense. There is no swap market for this trade.
They must SELL their US securities and BUY IMF securities.
Lots of LUCK in these transactions.
A quarter of the entire Russian economy is the oil and gas sector. Energy prices fell by a factor of four and have since retraced about half of that. When a quarter of your economy gets cut in half in less than a year, it isn't fun.
If you lend longer term you contract to get that rate for the whole period; if rates rise you get paid later. You will get the contracted rate over the whole period. When in that period you get it, depends on the path of interest rates during that period - but *that* you get it, does not.
What the Russians do or do not do in terms of the purchase or sale of our treasuries is not worthy of much consideration but it is symptomatic of the mindset of all other governments particularly the Chinese government towards the purchase of our treasuries. While the treasury auction may be oversubscribed that in itself means little. It is a what level they will purchase same. Should it be at 4%, 5%, or 6%. These higher level interest rates will put a crimp in U S budget that may well exceed the costs of the numerous and never ending bailouts.
Isn’t most of the IMF money just our money anyway?
Actually, they are “worth” what they were when they were bought. The ‘present value’ is lower because interest rates have gone up, but if they hold to maturity, at the moment there is no suggestion the U.S. will default on paying back the bonds.
My treasury funds went up quite a bit over the previous months, and have gone down recently, because of the changes in underlying interest rates.
I suppose we are screwed if the government decides to pull what they did with Chrysler, and give bondholders 29 cents on the dollar so they can give the rest of the money to the UAW.
We must hope that the Chinese and others holding these bonds believe that they will be redeemed in 30 years at face value in terms in present day dollars. To believe that you must be living in “Alice in Wonderland.” We are going to default either in terms of gradual or maybe rapid decline in dollar value or simply partial repudiation of US debt. If I had to choose one over the other it would be partial repudiation. There is no experience worse than constant and unremitting decline in the value of a currency. It makes paupers of those who saved and leads to the degeneracy of a society.
The treasury sells inflation-indexed bonds, so if you trust that the government will “keep it’s word”, you can buy those, then even if the government prints money, you will keep up with inflation.
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