TOKYO, Feb 8: Asian institutional investors, including central banks, will remain a big part of the US dollar bond market and are not worried about a US housing bubble, Freddie Mac’s new treasurer said in an interview on Wednesday.

Timothy Bitsberger, senior vice-president and treasurer at the No.2 US mortgage finance company, said the region’s central banks are becoming more aware of their position as huge dollar-based bondholders.

“One thing we’ve been starting to see over the past couple of years is that the central banks have a better understanding of the role they play,” said Bitsberger, who joined Freddie Mac in January after serving in the US Treasury Department.

“Asian central banks will remain very strong and vibrant in the US dollar market,” he said.

Asian central banks have become massive holders of dollars from repeated interventions to limit any strengthening of their currencies, stoking worries they could dump the US currency to limit their exposure.

The central banks of Japan, China, Taiwan and South Korea held a combined $2.13 trillion of foreign exchange reserves at the end of 2005, the bulk of which is assumed to be in dollars.

Increasingly those dollars are being invested in agency bonds like those issued by Freddie Mac, rather than in US Treasuries, for the extra returns they offer.

Federal Reserve data shows foreign central banks’ holdings of agency bonds jumped by $144 billion last year, much bigger than the $37.4 billion increase in holdings of Treasuries.

Freddie Mac and its sister company Fannie Mae buy mortgages from banks and other originators, freeing up funds for lenders to make loans. They then hold the securities in their portfolios or repackage them for investors.

Investors in Asia have warmed to a new security launched by Freddie Mac last March called the reference REMIC (Real Estate Mortgage Investment Conduits).

Unlike some traditional mortgage securities where the bond’s maturity can vary depending on how quickly homeowners refinance, the reference REMICs appeal to institutional investors for their guaranteed maturity dates and good-sized offerings.

Freddie Mac sold $3 billion of the reference REMICs in January, the largest such issue to date and with much of the issue going to Asian investors, some of them new to the company’s bonds. Freddie can sell reference REMICs each month this year.

Bitsberger said that while investors in Asia have regained confidence in Freddie Mac since a 2003 accounting scandal resulted in a $5 billion restatement and management shake-up, they are still focused on ongoing congressional scrutiny.

Republicans and the administration of President George W. Bush have called for a new regulator and say the mortgage portfolios of Freddie Mac and Fannie Mae, which together total $1.4 trillion, pose a threat to the financial system.

Fannie Mae is in the midst of its own accounting restatement that could total $11 billion.

On bond issuance, Freddie Mac plans to refinance $90 billion of maturing debt altogether this year, with additional offerings depending on the rate of growth in its mortgage portfolio.

Last year the portfolio expanded 8.7 per cent to $710 billion, but Bitsberger declined to indicate how much the portfolio might grow this year.

Bitsberger also said investors in Asia showed little concern about a bubble in the red-hot US housing market.

When Bitsberger asked institutional investors at a luncheon in Tokyo to raise their hands if they thought there was a nationwide housing bubble in the United States, none did. —Reuters