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Article: Pricing Trends Point to Benefits of Longer Maturities
2019-03-26
Advances and Letters of Credit

March 2019 – Short-term funding prices remain attractive, but the continued weakness in longer-term rates and corresponding flattening of the yield curve have driven the pricing differences between one-year and three-year Fixed Rate Credit (FRC) advances to near zero.

Because of this pricing trend, extending the maturity of your advance comes at a low cost. If you have been rolling over short-term FRC advances monthly or quarterly, or are seeking to add mid- to longer-term funding to your balance sheet, now may be a good time to lock in your rate for one, three, or even five years.

Example: Extend Your Short-term Advance to One Year
Compared to six months ago, the price difference between a three-month and one-year FRC has narrowed significantly, and maturities may be extended at a very low cost. If you are rolling over short-term advances, it may be advantageous to extend to one year and reduce your re-pricing risk.

     9/12/2018    3/11/2019   Change

Rate Difference Between 
Three Month vs. One Year

     +40 bps      +4 bps   -36 bps

 

advance-spread-change-six-month-chart

Example: Go Out Further on the Curve
If you are interested in locking in your rate for a period longer than 12 months, price differences on advances ranging from three to five years have also narrowed significantly since last fall. For example, as of 3/11/19, the rate difference between a one-year and five-year FRC was only 7 bps. The three-year FRC rate was lower than the two-year rate by 4 bps. Difference between a three-month and a three-year FRC was only 6 bps. There are many options available to lock in a favorable rate now on a mid- to longer-term maturity.

 

one-month-advance-history-chart

 

The Bank’s FRC advance is a flexible product that is an ideal solution to fund loans and investments, secure liquidity, and manage interest-rate risk in a rising-rate environment. You can increase your funding flexibility by creating a ladder of FRC advances of varying maturities or further reduce your total funding costs by blending FRC advances with core deposits.

To learn more about how you may benefit from recent pricing trends, call your relationship manager or the Funding Desk at 1.800.536.9650, extension 8011.

 

All rates presented in this article are for illustrative purposes only and are not predictive of current or future advance rates. The Federal Home Loan Bank of Atlanta is not a registered investment advisor. Nothing herein is an offer to sell or a solicitation of an offer to buy any securities or derivative products. You should consult your own legal, financial, and accounting advisors before entering into any transaction.

 

 

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