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Dutch Auction Special – Recap and Strategy

July 16, 2015

Since the beginning of 2014, we have offered eight Dutch Auction specials, and more than $500 million in bids have been accepted. Most recently, on July 8, some 18 members submitted 25 bids for their preferred advance amount and rate for two-, three-, four-, and five-year maturities. Some submitted multiple bids for more than one term. Once all bids were submitted, the Bank determined a clearing rate for each maturity, and all bids at and above that level were executed.

Final clearing rates for the offered maturities:

Two-Year:    0.90 percent
Three-Year: 1.25 percent
Four-Year:   No bids accepted
Seven-Year: 1.90 percent

These clearing rates represent discounts of up to 15 basis points off our posted advance rates at the time of the auction, and 10 members bid successfully, securing $38 million at these deeply discounted levels.

This unique format typically lends itself to a wide variety of bidding strategies, and not all bids are accepted. If you want to improve your odds of submitting a successful bid in future auctions, consider using the Bank's posted advance rates as a benchmark, since discounted advance programs most likely represent the low end of the pricing range. For example, the posted five-year advance rate at the time of the June 18 offering was 2.04 percent, while the five-year CDA-RDA was priced at 1.82 percent. As noted above, the clearing rate for the five-year auction came in at 1.90 percent.

There are many factors that affect the determination of Dutch Auction clearing rates, including market dynamics and bid volumes, so the associated discounts can vary dramatically. We encourage you to consult the Money Desk staff before, during, or after Dutch Auctions for insight regarding the format and the bidding process.

Continue to watch for additional updates regarding upcoming Dutch Auctions and other aggressively priced specials, and remember that most of our discounted offerings are based on your requests. As always, we encourage you to contact the Money Desk or your relationship manager when you have an interest in any specific advance product, structure, or term.

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