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Fannie Mae

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announced that the duration gap between its assets and liabilities narrowed to 10 months in September from 14 months in August, sending its shares up 4.6% in premarket trading.

The duration gap, which measures how Fannie Mae is managing interest-rate sensitivity, rose to record levels in August amid a frenzy of refinancing. This gap has been a

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cause for concern about Fannie Mae's prospects.

Fannie Mae said it managed to narrow the gap through hedging, shortening their liability-portfolio duration and lengthening their asset-portfolio duration. Shares of Fannie Mae were up $2.71 to $62.25 in active premarket trading, according to Instinet.

The recent refinancing activity caused shrinkage in the average life, or duration, of mortgages owned by Fannie Mae. The company gets the cash when refinancings occur, but also finds itself with a mismatch between its assets and future liabilities, namely the agency securities it has issued.