UPDATE 1-Fannie Mae sells $2 bln bills, rates jump in week

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NEW YORK, Sept 24 (Reuters) - Fannie Mae FNM.P sold $2 billion in bills at higher interest rates compared with sales of the same maturities a week ago, reflecting ongoing strain in the money markets.

Interest rates jumped by about 0.80 point from last week's auctions.

Federal housing agencies Fannie Mae and Freddie Mac FRE.P are among a host of companies that rely on short-term funding in their borrowing mix, and regularly need to roll over maturing debt.

"Everybody is trying to leapfrog the other guy to cheapen their short-term obligations just to get them out the door," said Jim Vogel, analyst at FTN Financial in Memphis, Tennessee.

"You just don't have enough room to move enough money for everybody to finance their rollover at anything like market effective terms," he added. "Agencies are in the mix because they count on a good bid of short-term rollovers."

The total volume of agency discount notes outstanding -- or existing debt maturing in a year or less -- was about $840 billion at the start of the month, according to FTN.

At the same time, Treasury bill rates have fallen sharply as skittish investors pump massive amounts of money into the government assets they deem safest and most liquid. For details, see [ID:nN24332247]

Fannie Mae said it sold $1 billion of three-month benchmark bills due Dec. 24, 2008 at a stop-out rate, or lowest accepted rate, of 2.950 percent and $1 billion of six-month bills due March 25, 2009 at a 3.400 percent stop-out rate.

On Sept. 17, Fannie Mae sold $1 billion of three-month bills at a 2.120 percent stop-out rate and $1 billion of six-month bills at a 2.600 percent stop-out rate.

The new three-month bills were priced at 99.254 and have a money market yield of 2.972 percent, while the six-month bills were priced at 98.281 and have a money market yield of 3.459 percent, according to Fannie Mae.

Settlement for the new bills is Sept. 24-25. (Reporting by Lynn Adler, with additional reporting by Rodrigo Campos, Editing by Chizu Nomiyama)