Aug. 28 (Bloomberg) -- Japanese investors made the biggest weekly net sales of overseas bonds since at least 2001 on currency swings and concern the U.S. housing slump will worsen.

Sales of overseas securities exceeded purchases by 1.42 trillion yen ($13 billion) in the week ended Aug. 23, according to figures based on reports from designated major investors released by the Ministry of Finance in Tokyo. JPMorgan Asset Management Japan Ltd. said last week it was reducing its holdings of debt issued by Fannie Mae and Freddie Mac.

``Japanese investors have been constant sellers of agency debt,'' said Hideo Shimomura, who oversees the equivalent of $4 billion as a chief fund manager at Mitsubishi UFJ Asset Management Co. ``Major Japanese institutional investors are likely to have sold agency bonds'' in the week ended Aug. 23

In addition to being net sellers of foreign bonds and notes, Japanese investors also sold a net 82.8 billion yen in overseas stocks and bought 154.1 billion yen in short-term overseas securities, Finance Ministry data showed. That resulted in total net sales of 1.34 trillion yen.

``Although Fannie and Freddie are being aided by the government, there still is no guarantee on their debt, so it is difficult to hold it,'' said Daisuke Uno, chief bond and currency strategist at Sumitomo Mitsui Banking Corp. in Tokyo. ``Without a guarantee, nobody will do anything as it's too risky, so they sold the bonds.''

Rising Volatility

Local investors may also have sold overseas bonds due to increased volatility in major currencies, said Tsutomu Komiya, an investment manager in Tokyo at Daiwa Asset Management Co.

``The forex market volatility has been so high that some investors are reluctant to hold foreign bond assets,'' said Komiya at the unit of Japan's second-largest brokerage, overseeing the equivalent of $88.7 billion.

Volatility implied by options for major exchange rates has risen nearly 2 percentage points from a year ago, according to data compiled by JPMorgan Chase & Co. The bank's index that tracks implied volatility on three-month options for the major currencies was 10.27 percent today, from 8.03 percent at the end of August 2007.

Overseas investors made net purchases of 557.9 billion yen of Japanese bonds in the week ended Aug. 23, sold 214.5 billion yen in stocks and cut holdings of short-term securities by 156.4 billion yen, the Ministry of Finance said. That resulted in total net purchases of 187 billion yen.

----With reporting by Shizuka Muragishi and Stanley White in Tokyo and Wes Goodman and Ron Harui in Singapore. Editor: Nicholas Reynolds, Nate Hosoda

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

Last Updated: August 27, 2008 23:55 EDT