Yesterday’s Fed rate hike announcement of 50 basis points came from a unanimous decision, and was not surprising as the committee is highly attentive to inflation risks¹. Their statement referenced the COVID-19 lockdowns in China and the ongoing impact to the supply chain. Overall, the statement is currently being viewed as hawkish to neutral.
In today’s Sales Team Update, we wanted to make you aware of favorable advance pricing. Advance pricing reacts quickly with market rate moves, and can be seen in both increasing and decreasing markets. The Bank issues debt at levels near where Treasury bills trade, which drives pricing on short-term fixed-rate advances.
Recently, we have been monitoring one-month Treasury bill (T-Bill) level trades in a lower range than expected headed into the May Fed rate hike. T-Bill supply has been low coming off of tax season, and the supply and demand imbalance remains mismatched as money market funds look for places to park an abundance of cash, and can also be seen in the $1.8 trillion parked in reserve repurchase agreements (repo). One-month advance rates have benefited from this mismatched pricing at 0.75% on May 5, 2022. Compare this to advance alternative references of repo at 0.81%² and one-month term SOFR at 0.80%. As can be seen in the chart below of one-month Fixed Rate Credit (FRC) advances vs. repo, the dislocation became more pronounced at the end of April. The Bank’s dividend on activity stock is not factored into the chart below.
If you would like to discuss how these strategies can work for your institution, please call your Relationship Manager or the Funding Desk at 800.536.9650, extension 8011.
¹ https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504a.htm
² Fed hike estimates from Bloomberg: https://www.bloomberg.com/quote/FDTR:IND
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. Interest and advance rates presented in this article are for illustrative purposes only.