The Implications of Russia's Declining U.S. Debt Purchases

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The week ahead in the financial markets is sure to excite with Ben Bernanke testifying and Apple (NASDAQ:AAPL) reporting earnings, but one hidden indicator that investors may have overlooked suggests that China still remains a buyer of U.S. Debt, while Russia…not so much. The Treasury International Capital flows (TIC) data show what, where and how much foreign governments bought of U.S. debt.

There are two key developments in this month’s TIC data:
1. China continues to buy U.S. debt while Russia has significantly reduced holdings
2. Foreign investors are increasing holdings in T-bills

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us-debt-holders

Despite contradictory rhetoric, China continues to be a massive buyer of U.S. debt. The most recent data show China increased holdings by 4.9% to a record high. On the other hand, Russia’s holdings dropped by 10%. As one of the top 4 holders of U.S. debt a decline in Russian holdings is a significantly negative event.

Examining the data more closely we find that the preference for T-bills has waxed.

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st-ly-purchases

tbonds-vs-notes

Short term U.S. securities are the investment of choice for today’s stylish central banker. The implication is that as the Treasury attempts to finance the deficit they may find it more difficult to do for a long period of time.

Disclosures: None