Russia Cuts Fannie/Freddie Holdings by over 50%

Just a quick post.

Well it didn't take long for the world to smell a rat as the US government bails out the housing market. Paulson and his crew have another press conference this afternoon. I am sure the spin machine will be back on full throttle.

Here is the news on Russia:

"MOSCOW, July 28 (Reuters) - Russia has cut its exposure to U.S. mortgage lenders Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to less than $50 billion by not refinancing matured short-term debt, a senior central bank official told Reuters on Monday.

Russia held about $100 billion in U.S. agencies Freddie, Fannie and Federal Home Loan Banks at the start of 2008, as part of its now near-$600 billion reserves, although over 80 percent of the holdings were due to mature within the year. "It's now less than $50 billion," central bank first deputy chairman Alexei Ulyukayev said.

"We had short-term paper. They mature: you can refinance and buy some more, or you can not," he told journalists later, when asked about why the central bank had reduced its holdings."


It looks like China is doing the same:

"China has come under "tremendous" pressure from the government, media and academia regarding its agency holdings, Merrill said. On Saturday, the U.S. government approved a housing market rescue bill that offers emergency financing to Fannie and Freddie and which will create an new regulator for the two.

"We believe China won't dump those agencies in the near future, but will be much more cautious in making new purchases," Ting Lu and Steven Lam, Hong Kong-based analysts for Merrill, said in the report.

"In the near term, due to rapid increase in foreign exchange reserves and the lack of low risk and liquid alternative investment opportunities, China may even add more US Treasuries," they said in the report, adding "in the medium to long term, we expect a faster shift of foreign exchange reserves to non-U.S. dollar-based assets with a wider asset class selection."

Final Take:

Well its Day 1 of the great housing bailout and the markets don't seem to be liking it. The bond market has been quiet so far. You can be sure they will have their say when this legislation is approved.

The DOW is down 175. The financials are getting hit hard. Its time to bring out Paulson and the cheerleaders from DC as Rome starts to burn.

Its only been one day post bailout and we already have our two largest debt holders nervous. They are only avoiding Fannie and Freddie debt for now.

Are treasuries next?

Keep an eye on yields in the bond market in the coming weeks.