Yesterday, both Brazil and Russia announced deals to swap U.S. Treasuries for International Monetary Fund (IMF) debt. The deals are worth $10 billion a piece, reports The Wall Street Journal.
“The moves are part of a bid by the so-called BRIC nations – Brazil, Russia, India and China – to play a bigger role at the IMF and other international institutions,” said the WSJ. “The announcements helped push Treasury yields to their highest level this year on concern that rising U.S. debt has hurt T-bill demand among big holders of U.S. dollar reserves.”
Indeed, India and China could be buying even more IMF debt with U.S. Treasuries.
Bloomberg reports that China will purchase $50 billion IMF bonds and that India may announce a similar plan soon.
Taipan Daily is your FREE resource for the hot global investment strategies available today... so you can beat Wall Street - and other investors - to the profits. Join us now, it's easy -- and free!!
That said, Bloomberg editors Lester Pimentel and Valerie Rota write, “Brazil, Russia, India and China’s plan to shift some foreign reserves into International Monetary Fund bonds may be more a signal of their growing financial clout than a lack of demand for U.S. assets.”
Regardless of these countries’ intentions, the result has been that U.S. Treasury yields climbed sharply – to the highest rate since October – and the U.S. dollar slipped yesterday.
Nouriel Roubini, the New York University economics professor who predicted the financial crisis, told Bloomberg that the dollar’s status as the world’s sole reserve currency may deteriorate, and that the foreign exchange market could see “complementary reserve currencies.”
It would, of course, take some time, says Roubini.
In the meantime, the U.S. dollar has started to recover from this shock a bit.
CNNMoney reports, “The dollar rose against the euro Wednesday, erasing losses suffered after Russia’s central bank said it will diversify its currency reserves by cutting U.S. Treasury purchases and buying IMF-backed bonds.”
China and Russia are the top and fifth holder of U.S. Treasuries respectively. Together, the two hold $906.3 billion in U.S. Treasuries.
Compared to that, the $70 billion in IMF deals ($10 billion for Russia, $10 billion for Brazil, $50 billion for China) is a drop in the bucket, though the ideological shift means a bit more, and is in line with recent rhetoric about U.S. dollar and debt fears.
Currency expert for the Taipan Publishing Group, Harinder Singh, writes, “The jawboning by Russia is not new, yet it affected the U.S. dollar somewhat.”
It created U.S. dollar weakness, which pushed up oil and gold, along with other currencies.
Harinder said, “[Dollar weakness was] helping the euro and British pound to gain over and above the reactive gains of Tuesday.” But as the U.S. dollar regained ground, Harinder reiterated his bearish stance on the British pound, and suggested that the U.S. dollar could find a bit more strength before all is said and done.
At least, in the short term.
U.S. debt and currency jockeying will make a yo-yo out of U.S. Treasury yields and the value of the dollar.
Other Articles Related To This Topic:
