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For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of securities.
Life After LIBOR
2 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
History
3 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
The beginning of the end of LIBOR
2012 Financial institutions found to be manipulating LIBOR for their own gain. Investigations, fines, jail terms and reputational damage ensue.
2013The International Organization of Securities Commissions (IOSCO) establishes principles for benchmark rates. LIBOR doesn’t meet the criteria.
June 2017The U.S. Alternative Reference Rates Committee (ARRC) selects SOFR as its recommended alternative to USD LIBOR.
July 2017 The U.K. Financial Conduct Authority says it will phase out LIBOR by 2021. At the time of the announcement, LIBOR underpinned more than $350 trillion in securities worldwide, according to Bloomberg.
April 2018New York Fed begins publishing SOFR.
4 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
The beginning of SOFR
2014The Federal Reserve Bank of NY convenes its Alternative Reference Rate Committee (ARRC) to identify best practices for U.S. alternative reference rates.
June 2017ARRC identifies broad UST repo financing rate SOFR as the preferred alternative to USD LIBOR.
April 3, 2018NY Fed begins publishing daily SOFR rates.
May 7, 2018CME launches SOFR futures.
July 26, 2018 Fannie Mae issues $6 billion of SOFR‐linked Floating Rate Notes (6m, 12m, 18m).
October 25, 2018 FASB adopts SOFR as a benchmark rate for hedging purposes.
2019Derivatives that reference SOFR are a key component in the transition due to the widespread use of contracts for hedging.
‐ Building liquidity in derivatives requires loans and mortgages to reference SOFR.
ARRC seeks to produce an indicative SOFR‐based term reference rate based on futures data.
5 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
What is the Secured Overnight Financing Rate (SOFR)?
What is SOFR?
● The Secured Overnight Financing Rate was selected by the Alternative ReferenceRates Committee to replace LIBOR
● It broadly measures the cost of borrowing cash overnight with U.S. Treasuries ascollateral
● The rate is a volume‐weighted median of transaction‐level data
How is it published?● The New York Fed publishes SOFR online at approximately 8 a.m. for the prior day'stransactions
● The rate includes nearly $750 billion+ in daily transactions
Characteristics
● Overnight: Unlike LIBOR, which is a term rate, SOFR is an overnight rate● Volatile: SOFR is more volatile than LIBOR or the effective Fed Funds rate●Minimal credit risk: SOFR should spike less in a credit event● Backward‐looking: ARRC is tackling how to build a forward‐looking SOFR term rate
6 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
LIBOR v. SOFR
Unsecured rate
Various maturities
Built‐in credit component
Partially transaction‐based
$500 million in underlying transactions1(3‐month LIBOR)
“The key challenge with LIBOR arises from the fact that unsecured borrowing transactions between banks have declined since 2008, reducing the size of the underlying market feeding into LIBOR submissions. SOFR, with its large range of observable transactions, will be a more robust, measurable and reliable benchmark. Thomas Pluta
Co‐Head of Global Rates TradingJ.P. Morgan
Leaving LIBOR: A Landmark Transition, jpmorgan.com
LIBOR
Secured rateOvernightMinimal credit riskWholly transaction‐based$750 billion in underlying transactions1
1Source: SIFMA.org
SOFR
V.
7 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
SOFR on the Move
8 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
SOFR moves higher when . . .
• The Federal Funds target rate climbsThe lowest U.S. rate is the rate paid by the Fed in reverse repurchase agreement (RRP) to investors that do not have access to interest on excess reserves (IOER). RRP is the lower bound of the Fed Funds target range. Repo trades relative to RRP, Fed Funds and IOER. As the Fed raises the target range, Repo should trade higher.
• More Treasury bills are issuedMoney market funds (MMFs) fund nearly $1 trillion of the $2 trillion market. MMFs can typically buy Repo (up to 7d), T bills and discount notes. If there is more bill issuance, 1‐month, 3‐month and 6‐month rates should all increase, as MMFs could substitute bills for Repo assets.
• Treasury issuance/dealer inventory are higherAs Treasury issues more debt, more collateral will most likely need to be funded, whether ownership sits with dealer desks or with levered investors.
• The Federal Reserve balance sheet decreasesThe Fed’s balance sheet unwind should put more collateral into the market, which will likely need to be funded via Repo. Conversely, the Fed halting its balance sheet unwind would remove an upward bias in Repo rates, all else being equal.
9 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
SOFR moves lower when . . .
• Government MMF balances riseMMFs are major Repo investors. Higher balances in government MMFs lead to more cash available for Repo and lower SOFR. Government MMFs gained significant balances relative to Prime Funds approaching money market reform in October 2016 and have largely held their lead.
• There are more shorts/specialsIf more securities go special in Repo, dealers’ cost of funding goes lower, and short sellers will lend cash at a lower rate to source specific collateral. General collateral (GC) will go lower as the same cash investors will compete for a smaller pool of GC collateral.
• Banks have more balance sheet availabilityBank balance sheets typically experience greater pressure at quarter‐end, year‐end, and sometimes month‐end, so GC tends to increase in these scenarios, and vice versa during periods of expanded bank balance sheet availability.
• Regulatory relief is providedRelief on certain regulatory capital calculations, such as LCR, CCAR, and GSIB, among others, may create more balance sheet availability across the street, which would push SOFR lower, all else being equal.
• New players come into the Repo spaceIn the current environment, balance sheet has been allocated from trading desks that traditionally run larger balance sheet/higher risk to Repo desks. This has created more balance sheet capacity. In addition, new players such as European and Asian banks have come into the space, where they are able to access Repo market.
10 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
SOFR in Action
11 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
What does a SOFR floater look like?
A lot like a Fed funds floater:
SOFR Floater Fed Funds Floater Treasury Floater
Index SOFR Fed Funds effective rate high rate from 13wk T bill auction
Coupon Frequency quarterly quarterly quarterlyReset Frequency daily daily daily
Reset Determination 1 business day prior 1 business day prior 1 business day prior
Coupon Lockout 2 ‐ 4 business days prior to interest date
4 business days prior to interest date
2 business days pror to FRN issue date or FRN interest date
Coupon Calculation simple average simple average
index rate computed on the most recent auction of 13‐week Treasury
bills that took place on a day before the accrual day, plus the
spread, divided by 360, subject to a minimum of zero
Day Count Basis actual/360 actual/360 actual/360
Minimum Rate minimum interest rate of 0.000% minimum interest rate of 0.000% 0.000% minimum daily interest accrual
12 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
GSEs Dominate Issuance
2018 SOFR Issuance = $36.4B2019 SOFR Issuance = $51.7BFrom July 2018 until today, GSEs have accounted for 80% of issuance
Issuer Name Ticker Number of IssuesTotal GSE SOFR Market Share
Amount Issued($ millions)
Federal Home Loan Banks FHLB 18 60.84% $43,200 Federal National Mortgage Association FNMA 7 18.31% $13,000 Federal Home Loan Mortgage Corporation FHLMC 16 17.21% $12,221 Federal Farm Credit Banks FFCB 3 2.11% $1,500 The World Bank IBRD 1 1.41% $1,000 Federal Agricultural Mortgage Corporation FAMCA 1 0.11% $80 Total GSE SOFR Issuance 46 $71,001
Source: Bloomberg as of 4/12/2019
13 For financial professional use only. Not for distribution. This presentation does not constitute an offer or solicitation of any securities.
DisclaimerThis presentation has been prepared by Incapital LLC or an affiliate thereof (“Incapital”). This material is for financial institutional or financial advisor use only and may not be distributed to any retail investor or other third‐party. This presentation is for general information purposes only and should not be construed as specific tax, legal or investment advice. The information in this presentation is subject to change without notice. Incapital does not warrant the accuracy or completeness of any information contained herein and provides no assurance that this information is, in fact, accurate. Data provided by third‐party sources is believed to be reliable and there is no representation or warranty as to the current accuracy of, or liability for, decisions made based on this material. Neither Incapital LLC, its affiliates nor its partners make any representations or guarantees as to the accuracy or completeness of data from third‐party sources.
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© 2019 Incapital. All rights reserved. Securities offered through Incapital LLC, Member FINRA/SIPC.
v011514
FHLB System Overview
HAWAII
ALASKA
Atlanta
Cincinnati
Dallas
Des MoinesIndianapolis
PittsburghSan Francisco
U.S. TerritoriesPuerto RicoVirgin Islands
GuamAmerican Samoa
Topeka
Chicago
Boston
New York
The 11 FHLBanks are government‐sponsored enterprises (GSEs)
organized as cooperatives under an act of Congress (Federal Home Loan
Bank Act of 1932)
FHLBanks serve the general public by providing readily available, low‐cost
funding to approximately 7,000 members, thereby increasing the availability of credit for
residential mortgage lending and investment in housing and community
development
FHLBanks fund their operations principally through the sale of debt securities
through the Office of Finance
Office of Finance
Debt Profile Reflects Member and Investor Demand
Source: FHLBanks Office of Finance – by settlement date – as of 3/31/19
($ in billions)
Total Debt Outstanding Bond Issuance*
14 17 40 12 16.5
166 123
82
41 36 19
54 89332
393 387 92
11575
70 36 37 17
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016 2017 2018 2019
Globals Bullets/TAPs FRNs Callables/Structured
LIBORandSOFRFRNs
349 304 524 482 477 129Gross Issuance:
571634
705 732 706 729
0
200
400
600
800
1,000
1,200
2014 2015 2016 2017 2018 2019Globals Bullets/TAPs Floating Rate NotesCallable/Structured Discount Notes
1,034
847905
Advances989
1,031 1,011
*Coupon debt only – excludes discount notes
($ in billions)
*
*As of 12/31/18
FHLBank SOFR Debt Transition
The FHLBanks recognize our leading role in supporting development of liquidity in the SOFR‐linked debt market
• Part of the FHLBanks’ transition will be supporting our members transition plans which will lead to our need to source SOFR‐based funding
The System began its SOFR issuance program in November 2018 with these objectives• Support development of SOFR floating rate note (FRN) market through regular and consistent issuance• Encourage broad investor participation to promote market development and liquidity• Standardize payment and reset features that are consistent with market participants’ expectations
The FHLBanks anticipate a multi‐phased approach to developing our SOFR issuance platform
Initial focus is on multi‐dealer syndicated issues to foster transparency and liquidity• We expect to access the SOFR market in a regular and consistent fashion developing and maintaining a
curve across 3‐month to 24‐month maturities in the current phase• Diverse investor participation includes MMFs, State & Local Governments, Fund Managers, Financial
Institutions, Insurance & Pension Managers and Corporations
FHLBanks have issued $39.15 billion in SOFR FRNs(November thru March)
2/11/2019, $1.00
11/13/2018, $1.50
12/18/2018, $4.00
1/15/2019, $1.75
2/25/2019, $5.25
3/18/2019, $2.50
12/6/2018, $2.05
2/11/2019, $1.50
3/6/2019, $3.25
11/13/2018, $2.50
1/15/2019, $1.00
2/19/2019, $2.55
3/25/2019, $4.25 1/22/2019, $1.50
12/6/2018, $1.55
3/13/2019, $3.00
‐2
0
2
4
6
8
10
12
14
27‐Oct 16‐Nov 6‐Dec 26‐Dec 15‐Jan 4‐Feb 24‐Feb 16‐Mar 5‐Apr
SOFR
+ ba
sis points
3 Months 6 Months 9 Months 12 Months 18 Months 24 Months
4/1/19
The Farm Credit SystemREGINA GILLSVP INVESTOR RELATIONSFEDERAL FARM CREDIT BANKS FUNDING CORPORATION
CMTA – APRIL 2019
Part of the Farm Credit System
OVERVIEW OF THE SYSTEM
Created by an Act of Congress (1916)
Government Sponsored Enterprise (GSE) created to support rural communities and agriculture with reliable, consistent credit and financial services
Direct lender to U.S. agriculture (farmers, ranchers, ag cooperatives, etc.)
Network of cooperatives owned by its borrowers (farmers, ranchers, agricultural cooperatives and rural customers)
Regulated and examined by the Farm Credit Administration (FCA), an independent agency in the Executive Branch of the US Government
Federal Farm Credit Banks Consolidated Systemwide Debt Securities are issued to fund the System’s loan portfolio, investments and operations
The Farm Credit System funds approximately 40% of all US farm business debt. (March 2019, USDA ERS)
19
Farm Credit supports rural communities and agriculturewith reliable, consistent credit and financial services today and tomorrow.
Part of the Farm Credit System
12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018
100.8 107.8 114.5 119.5 124.9
46.349.2
50.3 51.7 53.432.9
36.639.6
42.246.1
21.625.8
27.428.0
29.2
10.7
11.411.5
11.811.7
4.8
5.15.5
5.66.6 Agricultural Export
Finance
Rural residential realestate and other loans
Rural Infrastructure
Agribusiness loans
Production &intermediate‐termloansGenerally ag loans ‐collateralized by land
GROSS LOANS The System continues to experience moderate loan growth A variety of loan types are available to qualified borrowers Loan eligibility is based on credit, collateral AND repayment capacity/cash
flow.
20
($ billions)
217.1
235.9248.8
258.8271.9
Part of the Farm Credit System 21
SYSTEMWIDE DEBT SECURITIES OUTSTANDING
($ billions)
Please note columns may not total due to rounding *Includes Linked Deposits and Retail Bonds
12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 3/31/19
27.0 31.3 29.6 25.6 22.8 20.7
8.2 5.0 4.5 1.0 0.0 0.0
56.5 58.8 59.7 72.2 79.0 78.4
57.5 60.4 68.0 67.1 71.1 70.8
75.286.3
95.8 99.2 108.6 111.10.4
0.4
0.30.2 0.3 0.3
$224.8$242.2
$257.9$265.3 $281.8 $281.3
Other*
Floating‐Rate Bonds
Fixed‐Rate Non Callable Bonds
Fixed‐Rate Callable Bonds
Designated Bonds
Discount Notes
Part of the Farm Credit System 22
RELEVANCE TO FARM CREDIT
Floating Rate Bonds:LIBOR$83B
Floating Rate Bonds:Other$28B
Discount Notes$21B
Fixed Rate Callable$78B
Fixed RateNon‐Callable
$71B
Farm Credit Debt Outstandingat 3/31/2019
Part of the Farm Credit System
LIBOR Transition Efforts
Goals
– Support the market’s transition from LIBOR– Support the transition of the Banks of the Farm Credit System
– Minimize basis risk– Encourage consistency throughout GSE SOFR market
Farm Credit Transition Efforts
ISDA Workgroup membership ARRC’s FRN Sub‐workgroup memberships Farm Credit LIBOR Workgroup FCA Informational Memorandum SOFR floater issuance
23
Part of the Farm Credit System
FFCB US$500 million SOFR‐Indexed Floating Rate Notes due 06 February 2020Transaction Details
Issuer: Federal Farm Credit Banks
Issuer Rating: Aaa/AA+/AAA (Moody’s/S&P/Fitch)
Pricing Date: January 29, 2019
Settle Date: February 06, 2019
Size: $500,000,000
Price: SOFR+3bps
Maturity Date: February 06, 2020
CUSIP: 3133EJ6X2
Interest Payment Dates: Quarterly
Reset Dates: Daily
Reset Determination: 1 business day prior
Calculation Date: 2 business days prior toeach Interest Payment Date
Coupon Calculation: Simple Average
Day Count Basis: ACT/360
Leads: Bank of America, TD Securities
FARM CREDIT INAUGURAL SOFR‐INDEXED FLOATING RATE NOTE
11
Part of the Farm Credit System
FFCB US$500 million SOFR‐Indexed Floating Rate Notes due 18 March 2021Transaction Details
Issuer: Federal Farm Credit Banks
Issuer Rating: Aaa/AA+/AAA (Moody’s/S&P/Fitch)
Pricing Date: March 12, 2019
Settle Date: March 18, 2019
Size: $500,000,000
Price: SOFR+12bps
Maturity Date: March 18, 2021
CUSIP: 3133EKDM5
Interest Payment Dates: Quarterly
Reset Dates: Daily
Reset Determination: 1 business day prior
Calculation Date: 2 business days prior toeach Interest Payment Date
Coupon Calculation: Simple Average
Day Count Basis: ACT/360
Leads: Daiwa, Jefferies
FARM CREDIT SECOND SOFR‐INDEXED FLOATING RATE NOTE
12
Part of the Farm Credit System
FFCB US$500 million SOFR‐Indexed Floating Rate Notes due 15 January 2021Transaction Details
Issuer: Federal Farm Credit Banks
Issuer Rating: Aaa/AA+/AAA (Moody’s/S&P/Fitch)
Pricing Date: April 9, 2019
Settle Date: April 15, 2019
Size: $500,000,000
Price: SOFR+10.5bps
Maturity Date: January 15, 2021
CUSIP: 3133EKHC3
Interest Payment Dates: Quarterly
Reset Dates: Daily
Reset Determination: 1 business day prior
Calculation Date: 2 business days prior toeach Interest Payment Date
Coupon Calculation: Simple Average
Day Count Basis: ACT/360
Leads: Citigroup, Wells Fargo
FARM CREDIT THIRD SOFR‐INDEXED FLOATING RATE NOTE
12
Part of the Farm Credit System 27
DISCLAIMER
This overview is provided for general information purposes only. It is not an offer to sell or a solicitation of an offer to buy any Systemwide Debt Securities. Debt Securities are offered only in jurisdictions where permissible by offering documents available through our Selling Group. Systemwide Debt Securities may not be eligible for sale in certain jurisdictions or to certain persons and may not be suitable for all types of investors. All statements made in this overview are qualified in their entirety by the information in the most recent Federal Farm Credit Banks Consolidated Systemwide Bonds and Discount Notes Offering Circular, including the financial and other Systemwide information incorporated therein, and other offering documents. Copies of offering documents can be obtained, if permitted by applicable law through Selling Group members or through the Funding Corporation’s website at www.farmcreditfunding.com.
Any forward‐looking statements in this presentation are based on current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from expectations due to a number of risks and uncertainties. More information about these risks and uncertainties is contained in the System’s most recent Annual and Quarterly Information Statements. The System undertakes no duty to update or revise any forward‐looking statements, whether as a result of new information, future events or otherwise.
Part of the Farm Credit System 28
NEW NATIONAL MESSAGING CAMPAIGN
The “One Mission. Many Voices.” national messaging campaign brings FarmCredit’s mission to life through the many voices of its customers, directors,employees, and others. Please visit www.farmcreditvoices.com to learn more.