Fannie Mae will probably call $158 billion of callables over next six months

By Kenneth Lim

Boston, Aug. 30 - Fannie Mae will likely call $158 billion of callable debt over the next six months as they enter their callable periods, the agency said Monday in its August funding note.

"In an environment of rallying interest rates, similar to that we have experienced since the beginning of 2009, callable securities that have met or passed their lockout date are more likely to have their call option exercised," Fannie Mae said in the report.

Fannie Mae has $233 billion principal amount of callable debt outstanding. The $158 billion amount that the mortgage agency said it will likely call represents all its current callable debt that will be callable over the next six months. The assumption is that interest rates will remain at current levels or decline.

About $10 billion of those notes have American-style calls, which means that they can be called at any time after the window opens. European-style options, which can only be called at the call date, form $32 billion of the notes. Bermudans, which have a call schedule, represent $111 billion of the notes.

Fannie Mae will probably call securities if, when the call window opens, a hypothetical comparable issue has a lower yield than the outstanding issue, the agency said.

"If current interest rates continue to be low, or decline further, callable redemptions should continue to increase," Fannie Mae said.

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