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Credit Products – Curve Steepener Advance

A fixed-term, floating - rate advance that provides protection from a steepening yield curve since the advance rate decreases as the yield curve steepens. The advance rate is the difference between two components, a fixed component and a rate differential component. The fixed component is determined on the trade date of the advance and remains fixed throughout the term of the advance. The advance rate adjusts quarterly based on the rate differential between two points on the Constant Maturity Swap yield curve. The rate differential component evaluates the difference between two points, chosen by the member (longer term minus shorter term), on the CMS yield curve. This difference is subtracted from the fixed component to determine the advance rate.


 Key Features
  • Floating-rate, non-amortizing

  • Members specify the term of the advance and two points on the CMS curve, based on their own interest-rate-risk management objectives.

  • The interest rate can reset at a rate less than zero.
Common Uses
  • Provides protection from a steepening yield curve since the advance rate will decline as the reference yield curve steepens.
Maturities
  • Available in terms out to 20 years.
Indices
  • The 1-, 2-, 5-, 10- , and 30-year points on the constant maturity swap curve are available to choose from as the basis for the rate differential component.

  • Resets quarterly on the date of its disbursement, if it is a Boston business day.
Interest Calculation
  • Interest due on rate-adjustment date.
  • Interest is calculated on an actual/360-day basis.
Minimum
  • $2 million minimum, but smaller requests may be accommodated in special offerings.
Disbursement
  • Typically disburses two business days after the trade date. Curve Steepener advances can be requested until 1:00 p.m. on a Boston business day for second-day disbursement.

  • Certain market conditions may occasionally prevent the Federal Home Loan Bank of Boston from being able to execute the Curve Steepener advance.
Prepayment
  • The advance is prepayable, in whole or in part, on any date with two business-days notice, subject to a fee to make the Bank financially indifferent to the member’s decision to unwind the embedded curve steepener feature. Partial prepayments may be in amounts as small as $100,000 and in intervals of $100,000 thereafter.
Risks
  • The Federal Home Loan Bank of Boston does not act as a financial adviser, and members should independently evaluate the suitability and risks of this advance. Please see the Curve Steepener advance primer Adobe PDF icon for a discussion of the risks and other considerations associated with the Curve Steepener advance.
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