Fannie Mae sold $309.3 billion callables in 2010 to set record for issuance amid high redemptions

By Kenneth Lim

Boston, Jan. 7 - Fannie Mae issued a record amount of callable debt in 2010 amid high redemption rates in a low-interest-rate environment, the agency said in a report.

The agency issued $309.3 billion of callables in 2010, up from the $191.8 billion it sold in 2009. The numbers represent gross issuance, which do not take into account the amount of debt that Fannie Mae redeemed.

Fannie Mae also sold $82 billion of Benchmark Notes over the past year, the second highest yearly total since the issuance program began in 1998.

One consequence of the issuance has been the extension of Fannie Mae's debt maturity profile. Fannie Mae's short-term outstanding debt fell to $174.5 billion at the end of 2010 versus $200.1 billion as end-2009, the agency said.

Callable debt with the first call after six months was the most popular. The top structure was the five-year non-callable six-months, with $34.5 billion sold. The three-year non-callable six months structure was second with $27.3 billion. Three-year non-callable one-year, three-year non-callable three months and five-year non-callable one-year rounded out the top five structures.

A substantial amount of the issuance was driven by reinvestments, as Fannie Mae increased redemptions to take advantage of 2010's low interest rates, the agency reported.

The agency also believes that domestic investors were active in buying its callable debt. Agency debt holdings by the top 100 U.S. banks rose by 16.9% to $155.3 billion in the third quarter of 2010 from the second quarter of 2009, Fannie Mae said, citing data by the Federal Reserve.

In 2011, Fannie Mae expects its funding needs to decline, in line with requirements under its Senior Preferred Stock Agreement with the U.S. Treasury, which offered its support to Fannie Mae and Freddie Mac during the 2008 financial crisis.

"However, we will continue to issue long-term callable debt securities and noncallable syndicated

Benchmark Notes as well as short-term debt securities to meet investor demand as well as to meet our corporate funding needs," the agency said.

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