TOKYO: Freddie Mac, one of the largest sources of money for U.S. home loans, said demand among Asian investors would support the market for the mortgage finance company's bonds.
"There's strong, steady demand for Freddie Mac securities in this area of the world," said Patricia Cook, executive vice president of investments and capital markets for the company, which is chartered by the government.
Central banks in Asia hold $3.1 trillion, or about two-thirds, of the world's foreign reserves. Asian investors increased purchases of U.S. agency debt for a third year in 2006 as they shifted from U.S. Treasury securities in search of higher yields and returns, Treasury Department data showed.
Freddie Mac notes returned 4.1 percent last year, the largest amount since 2002, compared with 3.1 percent for Treasury notes, according to Merrill Lynch indexes.
The extra yield, or spread, investors demand to own Freddie Mac notes over similar-maturity U.S. notes narrowed to 0.24 percentage point Friday from 0.32 percentage point six months ago, according to Merrill.
"Demand for dollar assets is going to keep the spreads tight," Cook said Friday after meeting central bankers, life insurers and other financial institutions in Beijing, Hong Kong and the Japanese capital.
Freddie Mac sold 35 percent of its reference notes to investors in Asia in the 12 months ended Sept. 30, compared with about 16 percent in 2001, the company said. Reference notes have a minimum issue of $3 billion.
"Continued interest will support that sort of level," in the coming months, Cook said.
Asian investors made net purchases of about $135 billion of U.S. agency debt last year, compared with net purchases of around $66 billion in government notes and bonds, according to Treasury Department figures. Purchases of agency debt increased from $118 billion in 2005.
"From the perspective of central banks, it would make sense to shift to non-Treasuries because they probably want any bit of spread," said Yasuhiro Miyata, who oversees assets at DLIBJ Asset Management in Tokyo, including agency debt. He declined to comment on his investments.
China holds $1.07 trillion of the world's $4.99 trillion foreign reserves, the largest holding of any country. The next biggest holder globally is Japan, with $875 billion, followed by Russia with $309.5 billion.
Freddie Mac had $776.9 billion in debt outstanding on Dec. 31, according to the company. The U.S. Congress created Freddie Mac, based in McLean, Virginia, and the Federal National Mortgage Association, based in Washington, the biggest mortgage finance company, to expand homeownership by increasing financing and to provide market stability.
The portfolio of Freddie Mac, which grew by at least 12 percent each year from 1990 until 2004, fell by 0.9 percent last year to $704 billion. Freddie Mac agreed in July to limit its growth to no more than 2 percent annually.
Freddie Mac and Fannie Mae, as the national mortgage association is known, own or guarantee about 40 percent of the $10.5 trillion U.S. residential mortgage market.
U.K. property prices rise
British property prices have risen in February as a shortage of homes up for sale has mitigated the impact of higher interest rates, a survey showed.
Asking prices for properties have risen 0.9 percent after an 0.5 percent increase in January, according to Rightmove, the biggest property Web site in Britain. A 9.7 percent rise in values in the City of Westminster fueled a 1.1 percent increase for London.
"Everything is turning around in days or weeks," said James Gubbins, an agent at Dauntons Realtors in the London borough of Westminster and Pimlico. "The current level of interest rates isn't going to affect the market as it is at the moment. They'd have to move another percent."
Bankers spending bonuses bought luxury properties in the most expensive London neighborhoods, pushing up the cost of housing nationwide. Rightmove said the gain in February was the smallest for the month since its survey began five years ago, and suggested that price increases might be near a peak.
"February is the traditional start to the home moving season and is a good indicator of what might happen for the rest of the year," said Miles Shipside, commercial director of Rightmove. "People coming to market are thinking they need to be more competitively priced to sell."
http://www.iht.com/articles/2007/02/19/bloomberg/bxinvest.php
