Page 31 - RUSRptAug18

5.2.4 Gross international reserves
Russia's sovereign National Welfare Fund (NWF) reached RUB4.8 trillion or $77bn as of end of June 2018 , according to the Finance Ministry. The fund added solid $15bn month-on-month as compared to $62.7bn as end of May.
NWF is a sovereign fund previously planned for infrastructure development, social and pension reserve. It was previously matched by twin Reserve Fund, which was mainly a fiscal buffer that was completely depleted for financing the federal budget in 2016 and 2017 .
However, as the fiscal outlook improved notably with the growing oil price the Finance Ministry reinstalled the "budget rule" which caps the spending at $40 per barrel oil reference price and channels all the extra oil and gas revenues to purchasing and stocking forex off the market.
Since the beginning of 2018 the ministry acquired about $28bn in this way, and could buy another $35bn by the end of the year. The NWF could thus increase to $140bn by the end of 2018 reaching about 8% of GDP, the analysts surveyed by Reuters believe.
Should the oil prices remain stable, the reserves could reach the peak levels of 2008, when they stood at $252bn or 13.6% of GDP (before being split into the National Welfare and Reserve Funds).
Notably, while about 40% of NWF is already invested in infrastructure projects or deposited on the accounts of state banks and institutions it is unlikely that the steadily growing fund will be tapped more becoming a sizable sovereign buffer.
This is because its main two goals of infrastructure development and pension payments financing are tackled by the government through the establishment of RUB3.5 trillion Growth Fund for infrastructure investment and the long-delayed pension reform and retirement age hike , respectively.
Russia rapidly sold off the vast majority of its American TBills in July
causing yields to spike to over 3%. Between March and May, Russia's holdings of US Treasury bonds plummeted by $81bn, representing 84% of its total US debt holdings.
The sudden debt dump may have contributed to a short-term spike in Treasury rates that spooked the market. 10-year Treasury yields topped 3% in April for the first time since 2014.
It also sparked a guessing game about Moscow's motivations as the sell off came just ahead of a controversial summit between president Vladimir Putin and US president Donald Trump.
However, the sell off will not hurt the US bond market as despite the selling Russia holds proportionally few bonds. The removal of Russia from the market will easily replaced by life insurers and pension funds. Treasury rates quickly descended back below 3% because demand for bonds continued to grow.
Even at Russia's recent peak of $105.7bn in November 2017, it only ranked as the 15th biggest foreign holder of US debt. China owns about $1.2 trillion -- or roughly 10 times as much as Russia.
Russia is now out of the list of the largest T-bonds holders topped by China with $1.18 trillion, followed by Japan ($1.03 trillion), Ireland ($300bn), Brazil ($294bn) and the UK ($262bn), and closed by Chile with 33rd place and
31 RUSSIA Country Report August 2018 www.intellinews.com