Russian Investment in US Treasuries Plummets to New Low

Russia dropped out of the top holders of US Treasury bonds in 2018, when it began selling off over $96 billion in accumulated investments. Since then, in the face of sanctions, as well as ratcheted up diplomatic and military tensions between Moscow and Washington, Russia has gradually continued to reduce its holdings.

Russia sold off another $198 million in US Treasury bonds in the month of October, with the total value of Moscow’s portfolio dropping to $3.72 billion, and the majority of these ($3.17 billion) consisting of short-term bonds, data published by the US Treasury Department shows.

Data indicates that Russia’s investments in these bonds, marketed to foreign and domestic investors as a safe and reliable store of value, have continued dropping for several months straight, with total holdings amounting to just over $4 billion in August.

Does Russia Know Something the Rest of the World Doesn’t?

Russia’s continued withdrawal from the US bond market bucks the trend seen worldwide, with nations led by Asian industrial giants China and Japan continuing to pump cash into the US Treasury bond market, and total investment hitting a new all-time record of $7.648 trillion, up from $7.549 trillion in September.

Japan increased its holdings from $1.299 trillion to $1.32 trillion. Despite its trade and tech war with Washington, Beijing also increased its holdings, from $1.047 trillion to $1.065 trillion, during the same period.

In addition to reducing its T-bond holdings, Russia has also been slashing the share of dollars in its National Wealth Fund reserve cushion, with holdings dropping to zero in July, and replaced by euros, yuan, Japanese yen and gold. Moscow has also sought to reduce as much as possible the use of dollars in deals with major trade partners, including China, India and Turkey. In 2019, Russian oil giant Rosneft – the world’s largest oil and gas company by production volume and total reserves, completed a switch away from the dollar in favour of euros for export contracts.

In April, after the Biden administration introduced a new round of sanctions against Russia, targeting the country’s sovereign debt, Kremlin spokesman Dmitri Peskov told reporters that other countries would begin seeking to reduce the greenback’s share in trade once people the world over begin to doubt the currency’s stability.

National Debt Continues to Balloon

US national debt surpassed $29 trillion in November, with combined debt – which includes the national obligations plus all other public and private liabilities, topping $85 trillion – over four times America’s annual GDP, or equivalent to over $257,000 for every man, woman and child in the country.

Congress approved hiking the debt limit to $31.4 trillion on Tuesday, just a day before the 15 December deadline set by Treasury Secretary Janet Yellen, who warned that if the debt limit was not raised, the government would be left with insufficient funds to fund operations. The debt ceiling has ballooned by over 2400% since being introduced in 1917, when it was capped at $11.5 billion (equivalent to about $245 billion today). Since then, the federal government has used debt, combined with the dollar’s status as the world’s de facto reserve currency, to fund otherwise prohibitively expensive spending items, such as the Pentagon’s $770+ billion defence budget. At the same time, the United States remains the only wealthy industrialised nation without universal health coverage.