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To: John Madarasz who wrote (53404)	9/16/2002 4:02:26 PM
From: yard_man	Read Replies (1) \| Respond to of 209892

hmmm -- thanks. Just a rellocation from agencies -- wonder if that's true ... what's your take on the significance of that. Beginning of a flight to quality, or just a bunch of nervous nellies??

To: John Madarasz who wrote (53404)	9/16/2002 6:46:51 PM
From: NOW	Respond to of 209892

Fannie Mae August duration gap widens By Aleksandrs Rozens NEW YORK, Sept 16 (Reuters) - Fannie Mae , the largest U.S. provider of housing finance, on Monday said its duration gap -- a measure of how well it matches cash flows between its mortgage assets and its own debt -- widened to minus 14 months in August from July's minus nine months. Fannie Mae said the widening, in part due to a record volume of mortgage refinances, is not expected to affect its earnings or risk standards set by government regulators. News of the widening gap fanned expectations of a pickup in the company's need for securities like U.S. Treasuries to tweak the duration gap. As a result, U.S. government five-year and 10-year notes were better bid in early Monday trade. A negative reading in the duration gap means mortgage assets in Fannie Mae's portfolio are rolling off faster than its liabilities -- that is, its own debt. The agency tries to keep the gap close to zero and often reshapes its portfolio makeup by purchasing U.S. home loans, mortgage-backed securities, U.S. Treasury securities and certain classes of home equity loan-backed bonds. The August duration gap is at wides not seen since October 2001 when it was at minus 10 months. While the duration gap has been wider on an intra-month basis, this is the widest it has been at the end of a month, a spokesperson for the firm said. "We have had another 14-month negative duration before we released the monthly numbers (on a regular basis) two years ago," said Mary Lou Christy, vice president investor relations at Fannie Mae. "Every time we have been in a heavy refinance cycle, many MBS will refinance and the duration of your assets will shorten. It has happened before." Like October 2001, August saw mammoth demand for mortgage refinances as homeowners rushed to refinance home loans in record numbers because of historically low interest rates. WIDER DURATION GAP WON'T AFFECT RISK STANDARDS, EARNINGS In its release Monday, Fannie Mae said the wider duration gap does not affect its ability to comply with risk standards, nor is it expected to kick up costs for the agency. "We are confident that we will remain in compliance with our statutory risk-based standard," Fannie Mae said. The agency added: "If the only thing that was happening was the shortening in our asset durations relative to our liabilities, that would be a negative for net income. But in a refinance environment there are offsetting positives." Some of the positives include chances to buy mortgage bonds at wider-than-normal spreads and issuance of shorter-term securities that has become more cost-effective in the current steep yield curve environment. Fannie said that over the past eight years its duration gap has been outside its target range about one-third of the time. "At the end of 1997 and early 1998 we had five (consecutive) quarters of negative duration," Fannie Mae's Christy said. "On some other occasions we've brought it back through rebalancing. The costs of these rebalancings have varied markedly, but in general they have not been detectable by investors," Fannie Mae said in its release. Within the U.S. Treasury securities market, traders reported a pickup in buying of 10-year and five-year government bonds soon after news of the Fannie Mae duration gap circulated in the bond markets early Monday. "It moved us half a point today. This has happened before," said a Treasury trader with a Wall Street dealer firm, adding that some of the reaction may have been exaggerated by a thinned out marketplace due to the Yom Kippur holiday. While one trader said he saw some 12/32 to 16/32 of a gain in prices of 10-year notes, a trader with another dealer firm saw five-year U.S. Treasury paper bounce up some 8/32. The duration gap data may have helped propel government debt prices higher, but the trader said he does not expect an immediate pickup in agency buying of U.S. Treasuries. "It is not like when they publish the number, there will be immediate buying. It is one more piece of information." COMMITMENTS AND MORTGAGE PURCHASES RISE Meanwhile, Fannie Mae said its August retained commitments were up $41.3 billion versus July's $29.7 billion. Fannie Mae August mortgage purchases were at $23.1 billion versus July's $17.6 billion. The agency said its mortgage portfolio grew at a compound rate of 5.6 percent in August, while outstanding portfolio commitments rose to $59.4 billion at month-end, up from $38.2 billion last month. Fannie Mae's August total business volume rose to $59.2 billion from $49.3 billion, while net interest margin averaged 114 basis points in August, down two basis points from July. (Also, news out earlier today shows FNM selling 6.5b in T-Bills this coming Thursday) 09/16/02 13:07 ET