Some Asian central banks may have stopped buying Fannie Mae and Freddie Mac securities because the large share of agency notes and mortgage bonds in their U.S. dollar assets — in view of these holdings' declining value — may hinder currency interventions, analysts at Morgan Stanley said.

"Paper losses" on the debt, amid concern that Fannie and Freddie lack sufficient capital, explain the reluctance by central banks to sell their holdings, though they have cut purchases, the London-based currency analysts Stephen Jen and Spyros Andreopoulos wrote in a Sept. 4 report.

Federal Reserve data shows that foreign central bank holdings of agency debt and agency mortgage bonds fell to $965.8 billion in the week ended Sept. 3, from a record $983.9 billion on July 16. The decline came despite Treasury Secretary Henry Paulson's success in winning approval for a plan to support the government-sponsored enterprises.

Asian investors bought at least 34% of Freddie's most recent issue of its reference debt, the most for a two-year sale since January 2007, but central bank purchases declined to 39%, from 60%, in a July sale, according to preliminary company data.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.