Fannie Mae's new intermediate-term, noncallable note program got off to a running start this month, as investors snapped up $4 billion of the securities in Fannie Mae's biggest single issue to date.

There was "much more demand for the issue than supply" from both domestic and international accounts, said Gerald A. Rizzieri, managing director at Lehman Brothers.

Fannie embarked on what it dubbed the "Benchmark" program in mid- December, saying large issues of such securities would meet a demand for more liquidity and credit quality. The note issues will range in size from $2 billion to $5 billion, and Fannie Mae hopes to issue two every quarter subject to the market, said Linda K. Knight, senior vice president and treasurer.

This $4 billion issue, which came to market Jan. 15, offered a five-year term.

The motivation was "to organize our noncallable debt issuance in the most efficient manner possible" for more liquidity and enhanced tradability, said Ms. Knight.

With Treasury activity reduced, Fannie seized the opportunity, Ms. Knight said. The issue of five-year term notes is the first in a series of securities of varying maturities that ultimately "will allow us to build a yield curve," she added.

About 65% of the securities were sold to U.S. investors, about 23% to Europe, and close to 13% to Asia, said Ms. Knight. Investors who bought the security "are definitely managers who not only want liquidity but use liquidity. They tend to trade their position," she said.

Fannie Mae expects to issue about $80 billion to $85 billion of long- term debt this year, including $30 billion to $40 billion of bullet securities, she added.

Though Fannie's notes are not as liquid as Treasuries, they are "the next best thing" and "will help grease a lot of wheels on the Street," said John M. Atkins, senior analyst at Bondata Corporate Service, a Technical Data service.

As the Treasury diminishes its funding activity, there is increased need for liquid issues for investors to use as a hedge, Mr. Atkins said.

"The market was ready for a more defined curve for agency bullet securities, and Fannie Mae essentially helped fill that need," Mr. Rizzieri of Lehman Brothers said.

The Fannie Mae note was priced at a spread of 19 basis points over comparable Treasuries, said Mr. Atkins, and last week was trading at about 16.5 basis points over comparable Treasuries.

The sharp tightening reflects high demand, Mr. Atkins said, noting that agency issues' performance are usually marked by a slight widening in spreads after they come to market.

The Benchmark note is "an anomaly," he noted. "It will be a widely used hedging instrument, and the implied liquidity in that makes it a very valuable piece of paper to own."

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