Central banks are notorious for their ill-timed investments. The latest such trade was conducted by several Chinese banks in August as they reduced their combined positions in Fannie Mae and Freddie Mac debt.

Erring on the side of caution, you can’t blame China’s banks for selling Fannie and Freddie debt. After all, many of these banks have already lost billions betting on global stocks recently, including U.S. banks. But the timing of the sale is just dead-wrong since both lenders have the implicit guarantee of the U.S. government since mid-July combined with the richest spreads versus Treasury bonds in history. Fannie and Freddie bonds have gained 3% in 2008.

If anything, now is the time to buy, not sell, Fannie and Freddie debt. PIMCO, probably the savviest bond investors in the world with more than $800 billion in assets has been aggressively accumulating mortgage-backed securities. Last week, PIMCO announced the creation of a private fund to buy the highest quality mortgage-backed securities.

China’s recent paring of U.S. GSE (Government Sponsored Enterprises) holdings is not significant since the entire positions are valued at less than $13 billion dollars. Both mortgage lenders have issued hundreds of billions of dollars in fixed-income securities over the years; China’s recent paring from $23.3 billion on December 31 to $12.7 billion as of August 25 won’t affect GSE pricing in a big way. The figure is not big enough.

Global central banks and even some banks have a bad track record making investments lately.

Sovereign Wealth Funds, or SWFs, have been aggressively buying distressed U.S. and European financial services companies since subprime exploded in August 2007. These guys have already lost billions on paper since last fall.

Central banks are also notorious for making the worst investment decisions at the wrong time.

Over the last decade a host of central banks have dumped gold just as prices bottomed in the late 1990s.

Also, central banks in the Persian Gulf sold euro for dollars at the beginning of this decade just as the buck was forming a secular all-time high before crashing. And since last year, a few dozen SWFs have started to aggressively add common stocks to their state coffers; in 2008, the MSCI World Index has plunged 17% while global financial stocks have tanked 25%.

Are Chinese banks right to reduce GSE holdings this summer? My guess is probably not. I’ll bet on PIMCO.