Swiss pension fund shifting away from U.S.

IHT reports:

Switzerland's $15.5 billion state pension fund plans to reduce its investment in U.S. bonds and dollar-denominated debt because of concern that rising U.S. government debt and interest rates may hurt the U.S. economy.

Higher market interest rates could lead to defaults on loans by homeowners and affect mortgage finance companies including Fannie Mae and Freddie Mac, Eric Breval, managing director of the Swiss pension fund, said during a recent interview in Geneva. Assets will be shifted into euro-denominated bonds, he said.

U.S. government debt stands at a record, and Congress has increased its scrutiny of Fannie Mae and Freddie Mac amid concern that their debt may be too large, posing risks for the economy. Together, the two companies own or guarantee almost half of the $7.6 trillion U.S. mortgage market.

"There is a greater risk in the U.S. than elsewhere," Breval said. "When you see some institutions such as Fannie Mae and Freddie Mac and the time bomb they are sitting on, something may happen there one day, and we want to be less exposed."

Fannie and Freddie are rather risky.