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Economist: Time to sell US mortgage bonds
By Wang Yanlin |
February 11, 2011, Friday
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Online Edition
Online Edition
CHINA should "actively" reduce its holdings of bonds in Fannie Mae and Freddie Mac, an analyst said as the United States Congress may not support a government guarantee of the two American mortgage giants.
"The US government has long upheld the view that investors should also bear losses if they expect the government to lend a hand," said Lu Zhengwei, chief economist at the Industrial Bank Co. "Chinese investors won't be unable to retreat unharmed if they don't work actively to trim their holdings in these two firms."
Lu estimated that Chinese institutions may own about US$500 billion worth of bonds issued by the government-backed Fannie Mae and Freddie Mac and urged them to act at appropriate times to curb investment risks.
China's foreign exchange reserves are not invested in the two troubled firms, according to the State Administration of Foreign Exchange.
The likelihood of the US Congress supporting a government guarantee of the two mortgage firms is getting slimmer as the US economy recovers, easing lawmakers' concerns about the real estate industry, Lu said.
The US Treasury Secretary Timothy Geithner is due to present the Congress with three options today for reducing the government's role in the nation's housing finance system.
In September 2008, the US government bailed out the two mortgage firms which were deeply mired in the financial crisis. But they were still considered private in the eyes of American lawmakers, Lu said.
It is not immediately known whether or how much China has cut its holdings in Fannie Mae and Freddie Mac. But according to a report by the US Treasury Department, foreign governments and central banks had been shedding Fannie Mae and Freddie Mac-related bonds for the third straight month in November. Those holdings were cut by a record US$31.4 billion last September and the previous record monthly cut was US$16.5 billion in October 2008.
"The US government has long upheld the view that investors should also bear losses if they expect the government to lend a hand," said Lu Zhengwei, chief economist at the Industrial Bank Co. "Chinese investors won't be unable to retreat unharmed if they don't work actively to trim their holdings in these two firms."
Lu estimated that Chinese institutions may own about US$500 billion worth of bonds issued by the government-backed Fannie Mae and Freddie Mac and urged them to act at appropriate times to curb investment risks.
China's foreign exchange reserves are not invested in the two troubled firms, according to the State Administration of Foreign Exchange.
The likelihood of the US Congress supporting a government guarantee of the two mortgage firms is getting slimmer as the US economy recovers, easing lawmakers' concerns about the real estate industry, Lu said.
The US Treasury Secretary Timothy Geithner is due to present the Congress with three options today for reducing the government's role in the nation's housing finance system.
In September 2008, the US government bailed out the two mortgage firms which were deeply mired in the financial crisis. But they were still considered private in the eyes of American lawmakers, Lu said.
It is not immediately known whether or how much China has cut its holdings in Fannie Mae and Freddie Mac. But according to a report by the US Treasury Department, foreign governments and central banks had been shedding Fannie Mae and Freddie Mac-related bonds for the third straight month in November. Those holdings were cut by a record US$31.4 billion last September and the previous record monthly cut was US$16.5 billion in October 2008.
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