The Federal National Mortgage Association's $1 billion step-up offering, its biggest ever, brings the agency's total number of such notes outstanding to $3.7 billion, an official there said yesterday.

The deal helped push the corporate new-issue tally past $2.5 billion yesterday.

The agency issued $1 billion of 4.75% step-up notes due 1997 at par. Noncallable for a year the notes' coupon steps up to 3.35% after the call date.

If the agency calls the bonds at the call date, the yield is 120 basis points over one-year Treasuries. If not, the yield to maturity is 30 basis points over five-year Treasuries, a source at Merrill Lynch & Co. said. Merrill Lynch lead managed the offering.

Step-up notes have one coupon that runs to the call date and a higher one activated if the bonds remain uncalled by that date, the source explained.

Approximately $800 million of the bonds had been sold by late afternoon yesterday, he said, adding that the issue was fairly priced and going well as expected. Such a deal takes time to sell because of its large size and the high number of smaller investors involved, he said.

Fannie Mae issued its first step-up offering in late May and has since done 10 more, according to Steve Van Order, director of longterm funding at the agency.

The second-largest issue so far was a $675 million offering in mid-June, Mr. Van Order said. Traditionally, Fannie Mae had been bringing deals to market that had three, four, or five years of call protection, he said.

The one-year step-up structure affords Fannie Mae greater flexibility should mortgages pre-pay more quickly than expected.

"It's sort smoothing out our liability call schedule," the source said.

In other news, jailed junk bond king Michael Milken will be eligible for parole after serving 24 months in prison instead of 36 months following yesterday's decision by U.S. District Judge Kimba Wood, Stephen E. Kaufman, an attorney for Mr. Milken, said.

This means Mr. Milken could be paroled in seven months.

"The family is pleased and gratified with the decision because it means Michael will be reunited with them at an earlier time and start his community service and I'm sure make a significant contribution to whether project he's assigned," Mr. Kaufman said.

In Secondary trading yesterday, high-grade bond prices followed Treasuries, which finished unchanged in the long end and slightly higher in the intermediate sector High-yield bonds gained 1/8 to 1/4 point.

New Issues

Mobil Corp. issued $250 million of 8% debentures due 2032. The debentures were priced at 99.510 to yield 8.041% or 63 basis points over comparable Treasuries. Noncallable for 10 years, the debentures are callable at par in the last 10 years. Moody's Investors Service rates the offering Aa2, while Standard & Poor's Corp. rates it AA. Merrill Lynch & Co. lead managed the offering.

Paramount Communications Inc. issued $250 million of 8.25% debentures due 2022. Noncallable for 10 years, the debentures were priced at 98.684 to yield 8.37% or 98 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A. First Boston Corp. lead managed the offering.

Toledo Edison issued a two-part first mortgage bond offering totaling $245 million. The first tranche consisted of $100 million of 7.25% bonds due 1999. The noncallable bonds were priced at 99.89 to yield 7.27% or 115 basis points over comparable Treasuries.

The second piece consisted of $145 million of 7.8755 bonds due 2004. The noncallable bonds were priced at 99.88 to yield 7.89% or 130 basis points over 10-year Treasuries. Moody's rates the offering Baa3, while Standard & Poor's rates it BBB-minus. Morgan Stanley & Co. lead managed the offering.

AMC Entertainment issued a two-part offering totaling $200 million. The first part consisted of $100 million of senior notes due 2000. The notes are callable after five years at 103.4 then at 101.7 moving to part. They were priced at 99.36 to yield 12%.

The second part consisted of $100 million of 12.625% senior subordinated notes due 2002. The notes are callable after five years at 105.6, moving to 104.2, 102.8, 101.4, and then to par. The notes were priced at 99.294 to yield 12.75%. Citicorp Securities Markets Inc. sole managed the offering.

Burlington Resources on Tuesday issued $150 million of 6.875% notes due 1999. The noncallable notes were priced at 99.75 to yield 6.922% or 75 basis points over comparable Treasuries. Moody's rates the offering A3, while Standard & Poor's rates it A-minus. Morgan Stanley sole managed the offering.

Caesars World Inc. issued $150 million of 8.875% senior subordinated debentures due 2002. Noncallable for five years, the notes were priced at 99.835% to yield 8.90% or 227 basis points over comparable Treasuries. Moody's rates the offering Ba3, while Standard & Poor's rates it BB-plus. Merrill Lynch lead managed the offering.

Eaton Corp. issued $100 million of 8.10% debentures due 2002. The noncallable debentures were priced at 99.719 to yield 8.125% or 74 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A. Goldman, Sachs & Co. sole managed the offering.

Mississippi Power Co. issued $40 million of 6.625% first mortgage bonds due 2000. Nonrefundable for five years, the bonds were priced at 98.325% to yield 6.901% over seven-year Treasuries. Moody's rates the offering A1, while Standard & Poor's rates it A-plus. Kidder Peabody & Co. won competitive bidding to underwrite the offering.

Yesterday's Ratings

Moody's has upgraded Rollins Truck Leasing Corp.'s debt ratings.

"The rating action reflects the company's improved market position in the commercial truck leasing and rental industry as well as its modest leverage, healthy returns, and solid and stable debt-protection measurements," the agency said in a release.

Ratings upgraded include the company's collateralized debentures to Baa1 from Baa2, and the company's shelf registration to (P) Baa1 from (P) Baa2.

Duff & Phelps Credit Rating Co. has given a BBB rating to Columbus Southern Power Co.'s proposed offering from a $145 million shelf registration of first mortgage bonds and first mortgage bonds designated secured medium-term notes. The company will use proceeds to refund long-term debt and redeem short-term unsecured debt.

"Improvement at Columbus Southern Power Company will be more gradual than expected following the May rate order related to the company's Zimmer plant investment," Duff & Phelps said in a release.

According to the agency, the Public Utilities Commission of Ohio approved a $123 million phase-in-rate increase, compared to the $202.5 million Columbus had requested.

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