Fannie Mae (FNM) announced a two-year benchmark issue on Wednesday, after a six-month gap in issuance in this duration.

Also, as these benchmark notes come at a time when supply of new debt from the government-sponsored enterprises has dropped, there is expected to be strong investor demand.

While Fannie hasn't indicated how large the size of the current issue will be, the deal is likely to be oversubscribed, said Mark Noble, senior vice president of fixed income at MF Global.

The issue is expected to be modestly sized, as Fannie has been on a drive to shrink its debt as it no longer needs to raise capital to buy mortgage bonds for its investment portfolio.

This is in contrast to April when the mortgage finance company sold $6 billion of its two-year bond issue at 60 basis points over comparable Treasury yields, or a yield of 1.495%.

The initial price talk on the current two-year deal is at 24 basis points over comparable Treasury yields. Fannie's previous two-year issue was trading at 15 basis points, according to Trade Web data.

-By Prabha Natarajan, Dow Jones Newswires, 212-416-2468;

prabha.natarajan@dowjones.com