investors three- and six-month securities on a more regular basis.
Starting today, Fannie will auction the debt every Tuesday, in issues ranging in size from $4 billion to $8 billion for three-month securities and from $1.5 billion to $4 billion for six-month bills, Fannie said.
Dealers will auction the unsecured Benchmark Bills over the Internet. Investors would bid on the bills' yield, which would be gradually adjusted upward until it a responsive bid was met.
In a prepared statement, Linda K. Knight, senior vice president and treasurer for Fannie, said that issuance of agency discount notes has been irregular, with Wall Street dealers the primary investors. So far this year Fannie has issued more than $169 billion in three- and six-month notes. Now Fannie aims to attract a wider group of investors by having "a more disciplined and programmatic" approach and offering larger notes, Ms. Knight said.
Edward I. O'Brien Jr., senior vice president and manager of government agency trading for Prudential Securities Inc., said the plan is "kind of a follow-up to the Benchmark and the Reference Note programs" of Fannie and Freddie Mac. Those programs are intended to tap into demand in the bond market at a time when Treasury note issuance has declined.
The auction will create a "more liquid, more fluid market," enabling investors to use these instruments to hedge their positions, Mr. O'Brien said.
David Hochstim, an analyst for Bear, Stearns & Co., said Fannie's new program could help it reduce borrowing costs and will certainly increase demand for its debt. A saving of 1 or 2 basis points on funding costs translates into significant sum with Fannie's $504 billion mortgage portfolio, he said.
A spokesman for Freddie Mac said it has been issuing three- and six-month discount notes "very regularly" for years but has not followed an issuance schedule.
Investors in Fannie's program will be able to buy these bills at a discount from principal, and the bills will pay at par when they mature.
Bids of $1 million or more in $1,000 increments will be accepted from dealers. Fannie said it would limit individual dealers' allocations to 35% of the amount being auctioned, to ensure that multiple dealers support each issue.
There are 29 dealers or dealer banks in the program.