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Update: Long-Term Advance Activity and Advance Renewal Discounts

October 13, 2015

By Dan Redmond

The Federal Reserve's decision to delay a rate hike at their September meeting triggered a market rally that gave members additional incentive to extend advance maturities and lock in attractive rates. As a result, we witnessed another surge in long-term borrowing activity.

Members took down more than $500 million in long-term advances in September alone, as year-to-date long-term borrowing activity passed the $3 billion mark. This represents more than a 35 percent increase compared the first three quarters of 2014.

Some 143 members have accessed a variety of advance solutions during the year to draw down term funds with final maturities out as far as 15 years, using a variety of structured advance products and a new program that lets members secure discounted long-term funding on a daily basis.

Recent market conditions have led to favorable pricing on our putable advance solutions. Starting in mid-August, the Bank has offered a variety of specials featuring the HLB Option and Flipper advances, both of which let members borrow at lower rates by selling FHLB Boston the option to cancel the advance on specified dates prior to maturity. Members realized discounts up to 20 basis points below posted advance rates of similar term. In addition, during September, we conducted several offerings of our Member Option advance, where the member holds the option to prepay the advance on specified dates with no prepayment fee. This solution enabled members to extend maturities at discounted rates while picking up additional funding flexibility. Since mid-August, members have secured close to $200 million in discounted funding through these option-embedded advance offerings.

The new Advance Renewal Discount Program offers another way to secure discounted long-term funding. This program lets you renew maturing advances into new, qualifying long-term borrowings and automatically receive a discounted rate. To be eligible for the program, the maturity of the new advance must be one-year or longer and at least $1 million. We must also receive notice of your intention to roll your maturing advance two days prior to that advance's maturity date. Since its introduction in mid-September, members have tapped the program to renew more than $170 million of maturities into discounted, long-term advances. The program is only available for a limited time, so please contact the Money Desk with any interest or questions or click here to learn more.

Given market conditions and our wide range of solutions, now is a great time to address your interest-rate risk concerns. We will continue to offer specials based on market opportunity and member interest and, as always, contact the Money Desk or your relationship manager when you have an interest in any specific advance product, structure, or term.

See how your cooperative can work for you!

Dan Redmond is vice president/Money Desk manager at the Federal Home Loan Bank of Boston.

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