Overseas investors were less active buyers in Fannie Mae's third intermediate-term, noncallable note issue, which went to market this week.
Tighter spreads and the shorter maturity of the $4 billion issue kept some investors away from the three-year notes.
The secondary mortgage market agency issued the notes as part of its program to establish a global yield curve on its debt.
While the first two issues were snapped up by domestic and overseas investors predominantly from Asia and Europe, the third has been more coolly received in Europe and Asia because of the tight spread, said William T. Lloyd, director and head of market strategy and credit research at Barclays Capital.
"We didn't see the same kind of enthusiasm as we saw for the five- and 10-year issues," said Mr. Lloyd. Barclays Capital is one of 12 dealers in the sales group for the noncallable notes.
A trader on the London syndicate desk for a major European bank said there had been some inquiries but little trading in Europe. "From our perspective, the European accounts don't place such a high premium on this so-called 'surrogate Treasury status' that the deals have," he said. "It's clear that the investor base and most of the trading is in the" United States.
Indeed, Fannie Mae's preliminary numbers for the deal confirm that U.S. and Latin American investors led the pack, said Mehmood S. Nathani, director of long-term funding at Fannie Mae. They bought nearly 68% of the issue; 20% went to Europe, and 12% to Asia, he said.
"Now we have something trading in the shorter end of the curve," said Mr. Nathani. But while the three-year note helps the agency to extend its yield curve, some analysts and investors said that it is too early to tell whether the program will create a yardstick in addition to the Treasury yield curve.
Fannie Mae is "seizing upon diminished Treasury issuance to try and set a new benchmark curve," said Martin J. Schafer, vice president at Des Moines-based Invista Capital Management, a subsidiary of Principal Mutual Life Corp.
Fannie Mae is hoping that people will talk about its three-year, five- year, and 10-year notes, which are all designed to attract worldwide demand, he said. It does so "to drive down" its cost of funds, he added.
"The program here is to lower overall relative debt costs," said Jonathan Adams, a senior analyst at Prudential Securities.
"We clearly found a different audience for our 10-year than for our three-year," said Mr. Nathani, noting that the shorter-duration notes attracted a higher proportion of commercial and central banks, as well as investment advisers.
Fannie also reopened its second noncallable issue for an additional $750 million this week. This 10-year, $4 billion offering was originally brought to market Feb. 5.
Fannie's decision to increase it to $4.75 billion was based on investor demand, said Mr. Nathani. The extra supply will increase liquidity and be "quite easily absorbed by the market without any impact on spread," he added.
Preliminary numbers for the reopening showed that U.S. and Latin American investors led the way with 67% of the deal, followed by European investors with 22% and Asian investors with 11%, said Mr. Nathani.
Though Mr. Nathani said investors who own the so-called "benchmarks" can finance their position at attractive rates through Wall Street dealers, not all investors are plunging in.
"Why would I want to own lesser-yielding securities?" asked Mr. Schafer. "I find better deals in comparable medium-term notes" issued by the same agencies. "If I can find a similar maturity with more spread from the same credit, why wouldn't I?"
