IMF bonds: Less than meets the eye

The latest hysteria to hit the FX market is the fear that emerging powers like China, Russia and Brazil will pull funds out of US reserves and pump them into newly issued IMF debt. There are a couple of problems with this notion. For one, the bonds are not meant to be marketable. This will be a buy and hold proposition. Central banks get into and out of Treasuries all the time and movie along the curve as they see fit. Therefore, they are unlikely to commit any more than a token amount to these IMF issues. Second: What is the largest single component of Special Drawing Rights, the quasi-currency of the IMF? The US dollar, at 44%. The EUR makes up 34% the JPY and GBP 11% each. Some diversification… The IMF move is as much political as it is economic. The BRICs want recognition as players on the international stage. Ponying up for the IMF is part of the cost of admission. To spin it in a USD negative way suits the Russians and Brazilians as they love to tweak the US whenever they can. Looks to me like another tempest in a teapot with less than $100 bln (mostly from China) heading to the IMF, leaving trillions in the dollar. Look what the Fed’s $300 bln did to the ultra-deep Treaury market…not much. The BRIC withdrawals from Treasuries has likely already been front-run by a factor of ten…

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