October 13, 2016
By Dan Redmond
A flatter yield curve combined with another dip in long-term rates are fueling member long-term advance activity. Through the end of the third quarter, long-term borrowing in 2016 exceeds last year's levels by close to 30 percent, with a significant uptick in recent weeks because of market conditions and attractive pricing for a variety of our advance solutions.
In particular, the HLB-Option Advance has been extremely popular. FHLB Boston holds the option to cancel this long-term, fixed-rate advance on certain dates after a stated lockout period. By selling the Bank the right to cancel the advance, members receive a rate lower than Classic Advances of the same maturity. This solution also lets members customize terms, including final maturity, lockout period, and cancellation frequency. Responding to market opportunities, the Bank recently offered several HLB-Option specials with five- to 15-year maturities and lockout periods from one to three years. Members realized discounts up to 55 basis points below posted rates of similar terms.
The Member-Option Advance is in some ways the flip side of the HLB-Option. Highlighted in a recent webinar, this solution offers the option to prepay this fixed-term, fixed-rate advance, in full or in part, on specified dates with no prepayment fee. By holding the option to prepay, members can limit their exposure to prepayments on long-term mortgage-related assets or address an influx of deposits. Recent Member-Option specials were priced the same as Classic Advances, in effect providing a cancellation option at no charge. Like the HLB-Option, this solution offers members the ability to specify the final maturity, lockout, and cancellation frequency.
Other recent specials featured discounts on Flipper and Knockout Advances, both variations of the HLB-Option that offer similar advantages. Classic Advance specials are still our most popular solution, especially when offered in a Dutch Auction format where members submit bids for their preferred advance amount and rate.
Apart from specials, members can also take advantage of our recently enhanced Advance Renewal Discount Program by rolling and extending the maturity of their borrowings. The program now provides even greater discounts as members increase the amount of their maturing advances upon renewal. Learn more about the program's benefits here.
Market opportunity and member interest drive our specials. Please look for our daily email newsletter and check our website for more information, and, as always, don't hesitate to contact the Money Desk or your relationship manager when interested in a specific advance, structure, or term.
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Dan Redmond is vice president/Money Desk manager at the Federal Home Loan Bank of Boston.