Bonds in for Surprise Boost After Trump's $300 Billion Russia Reserves Change
Peace between Russia and Ukraine accompanied by European action to seize frozen dollar reserves would be good for bonds.
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Finally, President Trump seemed to encourage Europe to take steps to “take” some of Russia’s frozen dollar reserves.
There is approximately $300 billion of frozen reserves.
The vast majority of this sits in the European Union as, according to Grok, over $200 billion (of euros) was frozen. Our understanding is that some of the $65 or so billion of USD reserves frozen are not fully controlled by the United States.
I’ve written about this multiple times as a key element to forcing any peace between Russia and Ukraine.
I’ve also discussed my very strong view that the president was extremely reluctant to take or use Vladimir Putin’s frozen USD reserves. There was a view in the administration that the U.S. didn’t have the law on its side. It is also possible that, at the time, the administration wasn’t willing to be too aggressive as the president seemed to believe that his relationship with Putin would be enough to achieve peace, and threatening his reserves would not help their relationship.
I have heard from multiple sources that Putin fully expects to receive these reserves (it seems logical that behind the scenes, some countries helping him the most, have helped him “monetize” these reserves, making their “freezing” less effective).
Well, Europe keeping a big chunk of the money would be a wakeup call for Putin.
It “solves” the issue of how Ukraine (or Europe) is going to afford the weapons they are buying from the U.S. as $200 billion is one heck of a war chest.
Europe in general, and Ukraine in particular, have a stronger case for war reparations. Could it be as simple as Ukraine, in some international court, wins war reparations? But since Russia won’t pay, Europe would then provide the money from the funds. I'm not sure how this plays out, but Russia’s frozen reserves seem to be on the table for the first time and that is a big stick.
Is there a chance that Putin has promised some of this money (once it was returned) to his backers? That seems plausible as they are running what was already an anemic economy on a wartime footing. I'm not going to say that could be akin to borrowing from a loan shark, but in the movies, that rarely works out well. This could mean there is even more pressure on Putin to get the money returned than we know.
Threatening Russia’s frozen reserves may be the best thing I’ve seen in terms of pushing this conflict toward some sort of deal.
Bottom Line
Lower yields, flatter curves, in no small part because of global economic sluggishness as the world adapts to a new trade order. Peace between Russia and Ukraine, especially if it accompanies taking some of Russia’s frozen reserves, would help bonds, and we don’t think that is on anyone’s radar.
The equity grind continues. Good news is good. Bad news is good. No news is good. We did say last week that we thought there was a better chance of 5% downside before 5% upside. Even though we “only” got 1.6% this week on the S&P 500, we are still sticking with that view, though with yields coming down, potential surprises from the Fed and what we see as an improvement in the odds of some peace in Europe, it is difficult to stick to that view.
Credit remains boring in a “good” way and crypto continues to benefit from this shift to easier monetary policy in the U.S., the momentum created by the GENIUS Act, and other regulatory actions.
