Is the great Chinese Fannie and Freddie selloff finally over?

If President Trump and China’s leader Xi Jinping needed a light topic of conversation for their Florida rendezvous earlier this month, they could have picked mortgages. Trump knows a thing or two about taking out real estate loans, while Xi’s government controls billions in U.S. housing debt. There was plenty to talk about.

China had been selling off U.S. mortgage bonds at a rapid clip as it moved to shore up its currency and was no longer the largest owner of securities backed by Fannie Mae and Freddie Mac as of January 2017. But transaction data for February from the U.S. Treasury released Monday show that the selloff could be coming to an end. China added a net $12.9 billion worth of bonds that month.

Chinese entities held $181.8 billion worth of mortgage bonds issued by U.S. agencies at the end of January, according to the new data. That’s down 18 percent from a June 2015 peak of $222 billion. The volume of Chinese holdings of U.S. agency bonds for February is not yet available.

Japan is now the biggest foreign owner of U.S. agency bonds, expanding its holdings from a low of $151.9 billion in March 2015 to $226.5 billion in October 2016 before falling slightly to $218 billion in January.

China had been shedding foreign assets in a bid to stop the Renminbi from tumbling in value and make it more appealing as a global reserve currency. Buying and selling dollar-denominated securities like U.S. Treasury or mortgage bonds is a preferred method for foreign governments to weaken or strengthen their currencies.

“People pay a lot of attention to China’s holdings of Treasuries, so perhaps they [the Chinese government] prefer to let these similar assets [agency bonds] decline while holding on to their Treasuries,” said David Dollar, a fellow at the Brookings Institution and a former U.S. Treasury emissary to China.

The slide in China’s overall foreign currency reserves reportedly stopped in February and March as stricter capital controls took effect.

In the years leading up to 2008, China accumulated more than $500 billion in agency mortgage bonds, causing plenty of anxiety when their value tanked in the U.S. financial crisis. “I was talking to them regularly because I didn’t want them to dump the securities on the market and precipitate a bigger crisis,” Hank Paulson, Treasury Secretary from 2006 to 2009, said in a 2014 interview. 

Paulson claimed that the Russian government at one point tried to topple the US economy by selling its Fannie and Freddie bonds in concert with China.

“The Chinese weren’t going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship,” Paulson said.

In September 2008, the U.S. government took over conservatorship of Fannie and Freddie and soon China began selling off bonds backed by the two mortgage giants (see chart). But in between 2013 and 2015 it expanded its holdings again, before reversing course once more.

Buying mortgage bonds marked China’s first major foray into the U.S. real estate market in the early 2000s. More recently, Chinese institutions also invested heavily in commercial real estate properties, particularly in New York.