| OPEC Dumps $10.1 Billion of Treasuries as Oil <> Tumbles (Update2) By Bo Nielsen and Daniel Kruger Jan. 22 (Bloomberg) --OPEC nations are unloading Treasuries at the fastest pace in more thanthree years as crude oil prices tumble, sending bond yields higher. Exporters including Indonesia, Saudi Arabia and Venezuela, sold 9.4percent, or $10.1 billion, of their U.S. government debt securities inthe three months ended in November, according to Treasury Departmentdata. Members of the Organization of Petroleum Exporting Countries lastsold Treasuries for three straight months in June 2003. Oil producers have surpassed Asian central banks as the largest pool ofglobal savings, accumulating an estimated $500 billion in 2006 alone,according to research by Pacific Investment Management Co. The salesduring those three months mark a reversal because OPEC countries haveboosted their holdings of U.S. government bonds by 70 percent to $97billion in the past 17 months, Treasury data show. ``There will be a significant sell-off,'' Joseph Stiglitz, a Nobellaureate and economics professor at Columbia University <> in New York,said in an interview. ``Medium-term and long-term yields will go up.'' Oil producers, including non-OPEC countries, have disclosed almost $200billion of U.S. government, corporate and agency bonds, said RaminToloui, who helps manage about $641 billion for Newport Beach,California-based Pimco, a unit of Munich-based Allianz SE. The holdingsare split about evenly between securities due in less than a year andthose with longer maturities. Higher YieldsTreasury 10-year note yields fell one basis point to 4.77 percent as of9:05 a.m. in New York. The price of the 4 5/8 percent note due inNovember 2016 rose 3/32 to 98 29/32. Yields on two-year notes fell 1basis point to 4.91 percent. Bond prices move inversely to yields. OPEC members were selling Treasuries as crude prices declined 34 percentfrom a record high of $78.40 a barrel in July. They are reducing demandfor U.S. government bonds at the same time as central banks from Chinato Romania say they want to cut holdings of dollar-denominated assets. For every $10 drop in the price of a barrel of oil, OPEC members adjustTreasury holdings by about $34 billion, according to estimates byMichael Pond, an interest-rate strategist in New York at BarclaysCapital Inc. Yields on the benchmark 10-year note have climbed 35 basis points from a10-month low in December as economic data on housing and employmentsuggested the Federal Reserve would not cut its target rate forovernight loans between banks from 5.25 percent before June. Investing <> `Petrodollars' Short-term yields have remained above those on longer-term securitiessince mid-August. That situation, known as an inverted yield curve, hasoccurred only 11 percent of the time in the past two decades, accordingto Bloomberg data. Traders watch that difference because four of thepast five recessions have been preceded by inverted yield curves. ``The pickup in oil revenues and the recycling of the petrodollars'' wasone reason for 10-year yields falling as low as 4.33 percent last year,said George Goncalves, a fixed-income strategist in New York at Bank ofAmerica Corp. `Money <> to Invest' OPEC export revenue will decline by about $42 billion by the secondquarter, from a peak of $126 billion in the third quarter of 2006 as oilprices tumble, according to estimates from commodity analysts atCharlotte, North Carolina-based Bank of America. Crude for Februarydelivery fell $1 last week to $51.99 a barrel on the New York MercantileExchange. ``Lower oil prices mean less inflation pressure, but that doesn't seemto be going on,'' said Stiglitz of Columbia. ``The dollar has beensubjected to a great amount of exchange-rate volatility, and it's not agood store of value anymore.'' OPEC countries increased holdings of U.S. government bonds by 115percent from 2002 to 2006 when the price per barrel rose almost tripled,according to Treasury data. They still hold more Treasuries than in 2005, when oil prices jumped 41percent. ``Oil prices are still high compared to the long-run average, and thatleaves the oil-producing countries with money to invest in U.S.Treasuries,'' said Torsten Slok, an economist at Deutsche Bank AG in NewYork. Deutsche Bank estimates Middle East countries will stop investing inU.S. securities should oil decline to $30 a barrel. Oil averaged $33.28a barrel for the 10 years ended in 2006. Foreign ReservesThe oil exporters in the Middle East, Asia, Africa and South Americabought a monthly average of $2.5 billion of U.S. fixed- incomesecurities in the 12 months ended in May 2005, when crude oil averagedabout $42 a barrel, Goncalves said. Purchases jumped to $7.3 billion amonth from June 2005 through August 2006, when oil averaged about $60 abarrel, he said. ``When you bring the oil price down, that's going to take a lot ofexcess money off the table,'' said Andrew Brenner, head of global fixedincome for New York-based Hapoalim Securities USA, which has $70 billionunder management. Only Japan, China and the U.K. own more Treasuries than the 12-OPECnations, according to Treasury data released last week. The OPEC datadoesn't include securities owned by Russia and Norway, which account for40 percent of oil producer reserves, according to Toloui at Pimco. Central bankers in oil producers Venezuela, Indonesia and the UnitedArab Emirates have said they will invest less of their reserves indollar assets. China, the second-largest holder of U.S. debt, also is cutting backholdings. The central bank, which owned $346.5 billion of Treasuries asof November, trimmed purchases by 1.7 percent in the first 10 months of2006, Treasury figures show. ``The Chinese are slowing down their buying, so that leaves a big holeafter the oil money,'' said Brenner at Hapoalim Securities. To contact the reporter on this story: Bo Nielsen in New York atBnielsen4@bloomberg.net ; Daniel Kruger in New York atdkruger1@bloomberg.net . |
