China and Japan hail U.S. mortgage rescue as doubts linger
Written on September 8, 2008
China and Japan, the biggest buyers of Freddie Mac and Fannie Mae bonds, praised Washington for its rescue of the ailing mortgage giants, but investors had no illusions the bailout would end the global credit market misery.
As battered financial stocks rallied and investors sold safe-haven bonds, analysts cautioned that the plan announced on Sunday was more a sign of the perilous state of the global financial system than of an imminent recovery.
“We find it difficult to see how it is bullish that the heavy hand of government is needed to such an extent,” Merrill Lynch economist David Rosenberg said.
“In our view, the takeover of Fannie and Freddie is actually a testament to how broken the financial system is at this time.”
The most likely long-term beneficiaries of the move would be holders of the Freddie and Fannie bonds, which were trading a full percentage point above U.S faxless cash advance. Treasuries on Friday. On Monday, they were effectively as safe as U.S. government debt.
“We think a compression is likely,” Goldman Sachs said in a note to clients, of the spread over Treasuries.
China and Japan, the biggest and the second-biggest holders of the Fannie and Freddie bonds, welcomed the bailout.
“I think it will have a positive impact on the world economy as it eases worries over the U.S. economy through more stable financial markets in the United States,” Finance Minister Bunmei Ibuki told reporters on Monday.
Filed in: money.