Last week, Fannie Mae reported a slightly higher duration gap - although still within its targeted range of plus-or-minus six months. The duration gap rose to negative five months at the end of February from negative four months in January.

This is despite general market expectation that there would be a repeat of last August when Fannie's duration jumped to negative 14 months from negative nine months in July of last year. During that period, 10-year Treasury interest rates dipped 28 basis points, according to Salomon Smith Barney. Despite a similar dip in interest rates in February of this year, the GSE actually managed to maintain its duration gap within its targeted range. Salomon said that this should alleviate buysiders' concerns of perceived interest rate risk.

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