The FT reports that Bank of China, China’s fourth largest commercial bank, has sold a net $4.6 billion of debt issued by the two giant but troubled U.S. mortgage agencies, Fannie Mae and Freddie Mac.
Two points to be made about this: first, foreign investors have been the mainstay of this market, averaging purchases of $20 billion a month in the year to July, according to U.S. Federal Reserve data. That is twice their purchases of U.S. Treasuries. But but now Asian investors in particular have become net sellers of the agency debt. That is removing an important prop from under the market.
Second, Bank of China is still state-controlled, so its sales could signal an official change of sentiment towards holding agency debt or even U.S. dollar-denominated securities in general. For now, the stepped up purchases of Treasuries by foreign investors makes the second of those unlikely, but it needs a weather eye kept on it.