NEW YORK: Saudi Arabia has threatened to liquidate 750 billion dollars worth of U.S. Treasury holdings if Congress goes ahead and approves a bill that strips Riyadh of its immunity against private lawsuits relating to 9/11 attacks.
The objective of the bill is to allow 9/11 victims to sue the Saudis for their alleged involvement and financing of the infamous mass murder.
If the Saudis lose their immunity, their U.S. Treasury holdings can be frozen or confiscated by courts in America, and the only way to prevent it, would be to sell them at any price.
On the other hand, if the Saudis are interested in preserving their assets and choose to liquidate their USD 750 billion over a year or so, on the assumption that they have a buffer to do this before being convicted of anything, then the bond market should remain stable, Thinkstock has reported.
According to the Securities Industry and Financial Markets Association (SIFMA), the size of the U.S. Treasury market as of December 31, 2015, is USD 15,141.1 billion (over USD 15 trillion). Saudi Arabia holds about USD 750 billion of that total, behind China’s USD 3.2 trillion and Japan’s USD 1.3 trillion. These three countries, therefore, together own 35 percent of the entire U.S. government bond market.
Japan’s holdings have been steady since 2012, while China’s have fallen 20 percent since 2014, for an absolute fall of USD 780 billion in 21 months. Despite that sell-off, interest rates on US government debt have not increased since China began liquidating its treasuries.
What could be of concern to the United States is the fact that the Saudis might force the American bond market to crash in an act of revenge, and send interest rates skyrocketing.
According to JPMorgan, the amount of Treasuries that can now be sold in 2015 without affecting price is USD 80 million worth, down from USD 280 million in 2014.