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To: Les H who wrote (193279)	9/23/2002 2:48:25 PM
From: Les H	Read Replies (1) \| Respond to of 436258

Mortgage duration gap flap fuels bonds, but beware money.iwon.com extract below: OUTGUESSING FANNIE? Fannie Mae said massive refinancing triggered the big jump in its key risk measure: the so-called duration gap. Its assets were 14 months shorter than its liabilities at the end of August, up sharply from July, as its mortgage assets rolled off the books faster than they could be replaced. Fannie Mae's sibling Freddie Mac (FRE), which hedges its mortgage holdings differently, said its duration gap was unchanged at zero in August. The surprisingly large Fannie Mae gap spurred Merrill Lynch to downgrade the company's investment rating to "neutral" from "buy" and its regulator to step up scrutiny of Fannie Mae's interest rate exposure. Market players expecting Fannie Mae to snap up Treasuries to moderate that gap have jumped on the bandwagon expecting the agency's buying to further extend the bond rally. One reason the gains may be "exaggerated is because everybody is trying to figure out how short Fannie Mae is, and you have a number of market participants trying to front run," said Graham of Greenwich Capital Markets. One caution is that Fannie Mae, and other mortgage holders that need to add duration, can do so in other markets besides Treasuries. They can use swaps or mortgage securities. The agencies can repurchase their higher-yielding and longer-term debt and replace it with lower-yielding and shorter-term debt.