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China planning shift from Treasury to mortgage and corporate debt

Section: Daily Dispatches

China Wants to Adjust
FX Portfolio, Paper Says

From Reuters
Monday, November 6, 2006

FRANKFURT -- China wants to shift its foreign exchange portfolio away from U.S. Treasuries and into higher-yielding U.S. corporate and mortgage-backed debt, a German newspaper cited a financial source saying on Monday.

"According to information from financial circles, high-ranking Chinese monetary officials have made clear at international forums that a diversification of its currency reserves, which are mostly invested in U.S. government bonds, is necessary," the Financial Times Deutschland said.

The newspaper did not provide any further details or direct quotation from its source or sources.

The Chinese think a shift out of U.S.-dollar securities would be risky because it might spark a depreciation of the dollar, which would be costly for China as it holds almost $1 trillion worth of U.S. assets, the newspaper said.

"So what is more talked about is to increasingly bring higher-yielding dollar paper into the portfolio. This includes corporate bonds or bonds from para-statal institutions like the U.S. mortgage financiers Fannie Mae and Freddie Mac. Details are still unknown," the paper said.

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