Feb. 21 (Bloomberg) -- Russia can invest in Fannie Mae and Freddie Mac bonds through its sovereign wealth funds as part of a plan to diversify its holdings, the Finance Ministry said today.

Officials allowed investment from the Reserve Fund and National Wellbeing Fund into bonds issued by 15 government- linked agencies from the U.S., U.K., Germany, France, Austria, Canada and the Netherlands, including those of Fannie Mae and Freddie Mac, two of the largest sellers of agency debt, a spokeswoman for the ministry said on customary condition of anonymity.

``We want to diversify the investments, increase the income and keep a conservative approach,'' said Roman Shiyko, head of the Finance Ministry funds' management division.

Russia's decision to buy Fannie Mae and Freddie Mac debt and other countries' securities illustrates its desire to broaden its holdings and bolster returns. Inflation in Russia was 11.5 percent last year, with the government attempting to meet an 8.5 percent target in 2008. The ruble appreciated 6.4 percent against the dollar last year.

Freddie Mac today issued $4 billion of two-year notes at the highest yield over similar-maturity Treasuries in at least four years. The notes were priced to yield 2.892 percent, 70 basis points, or 0.7 percentage point, more than government notes.

The government ``picked the option that will help counter inflation,'' by not investing the funds at home, said Nikolay Kascheev, an economist with VTB Group in Moscow, Russia's second-biggest lender.

Diversifying Holdings

Shiyko said that 15 percent of each of the funds was being invested in the bonds on the list, approved by the ministry in January. He did not say how much was allocated to specific issuers.

The list included bonds issued by a French affiliate of Belgium's Dexia Group and the U.K.'s Network Rail MTN Finance.

``If you're going to buy and hold, this is a fantastic time to buy agency debt,'' such as Fannie Mae and Freddie Mac bonds, said Mary Beth Fisher, an interest-rate strategist at UBS AG in Stamford, Connecticut.

Some government-controlled funds, including Russia's, have benefited from record energy prices. Sovereign funds have invested at least $59 billion in the past year to shore up Wall Street banks such as Citigroup Inc., the biggest U.S. bank, and Merrill Lynch & Co., prompting U.S. legislators to call for greater openness.

Unwarranted `Suspicions'

``There is no basis for suspicions'' that politics would decide how Russia's funds are deployed, deputy chief of the ministry's international finance department, Pyotr Kazakevich said on Jan. 31.

Americans are growing wary of foreign governments buying stakes in U.S. companies, according to a poll commissioned by Public Strategies Inc., an Austin, Texas-based consulting firm that assists businesses with regulatory concerns.

By a two-to-one margin, those surveyed said purchases of U.S. companies by sovereign wealth funds have a negative effect on the economy. The poll was conducted Feb. 12-13 and has a margin of error of plus or minus 3.1 percentage points.

Russia's $157 billion Stabilization Fund, which invested some of the revenue from crude-oil sales in highly rated sovereign bonds, was split into The Reserve Fund and the National Wellbeing Fund on Jan. 30.

Annual Returns

The Stabilization fund had earned an annual return of 10.75 percent since July 2006, according to the Finance Ministry.

The Reserve Fund, containing $125 billion, is invested 80 percent in foreign sovereign bonds and 15 percent in securities of international financial agencies and central banks. The rest is in highly rated securities of international financial organizations, according to Kazakevich.

The $32 billion National Wellbeing Fund, whose holdings resemble those of the Reserve Fund, will widen its investments to corporate stocks and bonds ``sometime'' after Oct. 1, Kazakevich said on Jan. 31.

The government can tap into the National Wellbeing Fund to finance pension savings and fund shortfalls in the current state pension payments. The Reserve Fund will act as a safety net for the budget.

Also on the ministry's list are Landwirtschaftliche Rentenbank, Germany's agriculture finance agency; Spain's Instituto de Credito Oficial; the state-owned Austrian company that builds and runs the nation's motorways, Asfinag; Germany's state-owned development bank, KfW Group, and Canada's Export Development Canada.

Additionally, on the list are the Netherland's BNG Bank; the U.S.'s Federal Home Loan Banks and Federal Farm Credit Banks; France's Caisse d'Amortissement de la Dette Sociale; Credit Foncier de France, and the Austrian export-import bank, Oesterreichische Kontrollbank Aktiengesellschaft.

To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net

Last Updated: February 21, 2008 15:16 EST