Drop in Advance Rates - Opportunities to Capture Cheaper Funding

March 8, 2024

At market close on Friday, March 1, yields rallied, particularly in the belly of the curve. This move in rates followed Federal Reserve Governor Christopher Waller’s speech where he discussed future quantitative tightening measures and the continued normalization of the Federal Reserve’s (Fed’s) balance sheet.

In his speech, Waller stated he would like to see the Fed continue to “normalize” the balance sheet by reducing its size while still retaining enough assets to manage monetary policy using an ample-reserves regime. Although unlikely, Waller stated he would like to see the Fed’s mortgage-backed securities (MBS) balances drop to zero and for the balance sheet to shift towards a larger share of short-dated Treasury securities. Per Waller, this shift would more closely align the Fed’s balance sheet with their own fed funds target rate and allow their portfolio to move in accordance with the Federal Open Market Committee (FOMC) increases or cuts to the target range.

This week's economic data releases further supported the rate rally, all of which has led to a drop in FHLBank Chicago advance rates, opening opportunities to capture cheaper funding.

A121 Fixed Rate, Fixed Term Advance:

Advance TermMarch 1 RateMarch 8 RateDifference
1 year5.09%5.00%-0.09%
2 years4.71%4.53%-0.18%
3 years4.51%4.32%-0.19%
4 years4.44%4.23%-0.21%
5 years4.37%4.15%-0.22%
6 years4.52%4.30%-0.22%
7 years4.55%4.33%-0.22%
8 years4.62%4.41%-0.21%
9 years4.63%4.44%-0.19%
10 years4.66%4.45%-0.21%


Fixed rate putable advances are also receiving a benefit from the rally in rates coupled with an increase in volatility. This dynamic is particularly benefiting 2-5 year final maturities with shorter lockout periods.

A123 Putable Fixed Rate Advance (European/1x Option):

Advance TermLockout PeriodMarch 1 RateMarch 8 RateDifference
3 years6 months4.12%3.96%-0.16%
5 years6 months3.81%3.66%-0.15%
7 years6 months3.72%3.57%-0.15%
10 years6 months3.69%3.56%-0.13%
3 years1 year4.18%4.01%-0.17%
5 years1 year3.87%3.71%-0.16%
7 years1 year3.76%3.59%-0.17%
10 years1 year3.69%3.53%-0.16%
5 years2 years3.96%3.78%-0.18%
7 years2 years3.81%3.62%-0.19%
10 years2 years3.70%3.53%-0.17%
7 years2 years3.87%3.67%-0.20%
10 years5 years4.10%3.90%-0.20%


Term funding spreads also continue to trend tighter, which is favorable for floating rate advance spreads. These spreads remain close to the lower end of the range over the past year. While the belly of the curve remains elevated versus the levels we saw last month, members could capture better term funding compared to what we have seen if the rally continues throughout this week.

For more information or to execute an advance, FHLBank Chicago members may reach out to their Sales Director or the Member Transaction Desk at 855-345-2244, option 1.


Disclaimer: The data and valuations provided in this message are for information purposes only and are provided as an accommodation and without charge. The Federal Home Loan Bank of Chicago makes no representations or warranties about the accuracy or suitability of any information in this document. This document is not intended to constitute legal, investment, or financial advice or the rendering of legal, consulting, or other professional services of any kind.

Contact your Sales Director for more information.

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