Russia says may cut U.S. agencies holding further

[QUESTINY]

By Yelena Fabrichnaya and Gleb Bryanski

MOSCOW (Reuters) - Russia's central bank has cut its holdings of U.S. agency debt to less than $60 billion this year and may reduce them further, its first deputy chairman, Alexei Ulyukayev, said on Monday.

The U.S. government on Sunday took control of mortgage finance firms Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), launching what could be its biggest federal bail-out ever, in a bid to support the U.S. housing market and ward off more global financial market turbulence.

At the start of the year Russia held $100 billion -- or over one sixth of its gold and forex reserves -- in Fannie Mae, Freddie Mac and Federal Home Loan Banks. The holdings have since been reduced by around 40 percent.

"For the Bank of Russia, one of the holders of the agencies' debt, nothing has changed substantially (after the U.S. decision)," the bank's first deputy chairman Alexei Ulyukayev said in an interview at the Reuters Russia Investment Summit.

"However, we are not making any pledges. Most likely we will continue to decrease the share (of U.S. agency's debt) a little but we will look into the situation as a whole," he said at the event, held at the Reuters office in Moscow.

He described the U.S. bailout as "well motivated".

The U.S. move lifted Russian stocks, which had last week hit a 2-year low, as investors regained an appetite for emerging market risk. That over-ruled concerns about the consequences of Russia's military conflict in Georgia and political standoff with the West.

Ulyukayev said external events have played a bigger role for the Russian market than domestic ones such as the Georgia conflict, a row around BP's (BP.L: Quote, Profile, Research, Stock Buzz) Russian venture TNK-BP and a government attack on coal miner Mechel (MTL.N: Quote, Profile, Research, Stock Buzz).

"From my point of view Russia, as an open economy and an active player in the global economy is more dependent on external factors," Ulyukayev said, adding that only speculative capital reacted to domestic factors.

"The key players are taking their cues from global markets. This is by far more important for investors," he said. "Only in the third turn the market is reacting to domestic political signals."

Ulyukayev noted that the resolution of situations around Mechel and TNK-BP did not have a significant impact on the Russian stock market and said that its performance was not very different from that of other emerging markets.

COLD WAR RIVALS

Russia has invested in U.S. agencies' debt aiming to boost returns on its $582.5 billion reserves, the world's third largest, but the news of the holding met growing protests at home amid souring ties between former Cold War rivals.

"We are working with several asset classes and will look at the agencies' debt relative to other asset classes. We are not setting out a pattern, we are ready to buy these securities as previous issues mature. We are flexible here," Ulyukayev said.

Ulyukayev said as Russia cuts its agencies' debt holdings it invests more in Treasuries, as well as diversifying away from the dollar into yen and Swiss franc. The central bank currently holds about 49 percent of the reserves in dollars.

"Speaking about the dollar part we can cut the agencies' share and invest in Treasuries but there are other possibilities. We can also change the currency structure. We have already increased our holdings of yen and Swiss franc."

Deputy Finance Minister Dmitry Pankin told Reuters Investment Summit Russia was more preoccupied with the agencies' future.

"The biggest question now is what will be their future, what will be the future of the mortgage market in the United States," Pankin said.

"Will it be a government agency or ... like (former Federal Reserve Chairman Alan) Greenspan proposed, a privatization of this agency and a creation of 5 to 7 private entities."

Ulyukayev said despite political tensions the central bank still felt comfortable with its investment in U.S. assets.

"We feel comfortable but reserve the right to change. We do not see any big risks coming from the U.S. economy," Ulyukayev said.

(Editing by Paul Bolding)

[Zarathustra]

"For the Bank of Russia, one of the holders of the agencies' debt, nothing has changed substantially (after the U.S. decision)," the bank's first deputy chairman Alexei Ulyukayev said in an interview at the Reuters Russia Investment Summit.

"However, we are not making any pledges. Most likely we will continue to decrease the share (of U.S. agency's debt) a little but we will look into the situation as a whole," he said at the event, held at the Reuters office in Moscow.

He described the U.S. bailout as "well motivated".


The bad debt in the form of Fannie and Freddie securities held by Russia, China, Saudia Arabia, and Japan, amongst others, was a threat being held over the heads of the U.S. government and the Federal Reserve. Notice in the quote above the implication that had Frannie and Freddie not been nationalized, i.e. foreign losses guaranteed by, the Federal government, the 40% reduction would have grown quickly. The dumping of dollar denominated paper by the aforementioned countries is the knife at the throat of the U.S. economy.

[QUESTINY]

"For the Bank of Russia, one of the holders of the agencies' debt, nothing has changed substantially (after the U.S. decision)," the bank's first deputy chairman Alexei Ulyukayev said in an interview at the Reuters Russia Investment Summit.

"However, we are not making any pledges. Most likely we will continue to decrease the share (of U.S. agency's debt) a little but we will look into the situation as a whole," he said at the event, held at the Reuters office in Moscow.

He described the U.S. bailout as "well motivated".


The bad debt in the form of Fannie and Freddie securities held by Russia, China, Saudia Arabia, and Japan, amongst others, was a threat being held over the heads of the U.S. government and the Federal Reserve. Notice in the quote above the implication that had Frannie and Freddie not been nationalized, i.e. foreign losses guaranteed by, the Federal government, the 40% reduction would have grown quickly. The dumping of dollar denominated paper by the aforementioned countries is the knife at the throat of the U.S. economy.

Excellent post. You are absolutely right. You may want to check out my post about China threatens the US regarding Fannie and Freddie in the Whistleblower section.

The US has pledged to make them whole by the way. No money has transpired yet. It may be a stall tactic?

[Zarathustra]

Questiny,

I read the post, and I agree with it completely. The shame is the American people cannot see the true purpose behind F and F's takeover by the Treasury. I have spoken to several people who believe that the government took this action in order to make it easier for them to pay their mortgage. Unbelievable! You obviously understand the truth, that we are seeing the consequences of foreign ownership. Essentially, the taxpayer is going to pay the interest on the money created by the Fed to subsidize poor investments made by China, Saudi Arabia, Russia, and Japan, in order that the spigot of foreign investment remains freeflowing. Otherwise, how would we fuel up the bombers that eradicate wedding parties in Ahfganistan?