Asian Investors Refuse to Buy Fannie and Freddie Debt Without Explicit Guarantees

Bloomberg is reporting that Asian investors won’t buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until they carry explicit U.S. guarantees, similar to those given on bonds issued by Bank of America Corp. or Citigroup Inc. This even after President Barack Obama vowed on Feb. 18 to sink as much as $400 billion of capital into Fannie Mae and Freddie Mac, double the original commitment.

Foreign investors sold $170 billion of agency debt and securities in the second half of 2008, the largest amount since the Treasury began tracking sales in 1977, according to the most recent data. Asians, the biggest non-U.S. block of owners in the category, unloaded $70 billion worth from July through December, after scooping up $55 billion in the second quarter and being net buyers during much of the last decade. “The U.S. government is worried about the agency market, and market participants feel the same way,” said Kei Katayama, head of the foreign fixed-income group in Tokyo at Daiwa SB Investments Ltd.

Japanese institutions like Fukoku Mutual Life Insurance Co., once big buyers of US agency securities, spent last year trimming “risky assets,” and sold all agency holdings in the third quarter, said Satoshi Okumoto, general manager at the company in Tokyo, apparently because agency securities are now considered "risky assets".