Fannie and Freddie:

US agencies Fannie Mae and Freddie Mac are two of the most voracious users of interest rate hedging tools, especially swaptions and related instruments, which they use to hedge their vast mortgage portfolios. Naomi Humphries asks them about their main risk management concerns, and whether the derivatives markets are serving their hedging needs

What do you expect prepayment risk to be like in 2003? What are your expectations based on?

Peter Niculescu, executive vice-president of Fannie Mae’s mortgage portfolio business: Fannie Mae’s low-risk growth business model enables us to manage credit and interest rate risk inherent in our business through a wide range of economic and interest rate environments. Managing prepayment risk is something our disciplined risk managers do every day. While prepayments may continue to rise