Notes from the Funding Desk: Four Unique Funding Strategies

Economic uncertainty surrounding the outbreak of COVID-19 has pushed FHLBank Chicago advance rates lower, creating a unique opportunity for many funding strategies. Please consider the following four strategies for your institution:

1. Utilize short term advance funding at rates less than 50 bps to maintain liquidity. 

  • Fixed advance maturing 1-week to 6-months from now are priced lower than 50 bps, or lower than 25 bps net of our dividend benefit. Give your institution peace of mind by locking in funding for the near term. 

2. Add cheap call-protection to advances and give your institution the option to prepay at par if rates fall further. 

  • Fixed callable advances have become much more attractive, costing an additional 8-14 bps over regular fixed rate advances. Members can lock in low rates now and benefit as rates rise, or exercise their option to call it at par if rates fall.

3. Purchase assets funded with ladders of 1-3 year fixed advances at rates less than 125 bps.   

  • Many sectors including municipal, corporate, and mortgage-backed securities (MBS) bond spreads have widened 100+ bps in the new environment. Take advantage of these spreads by funding with relatively lower advance rates less than 115 bps net of the dividend benefits between 1-3 years. 

4. Execute the Swap + Rolling advance strategy, and create synthetic fixed rate funding at a negative rate to start! 

  • Execute a cash flow hedge with a pay fixed swap based off 3-month LIBOR, in conjunction with rolling 3-month advances, to create synthetic fixed rate funding at -0.32% for the first three months! 


If you'd like to learn more about these strategies, please reach out to your Sales Director.

Contact your Sales Director for more information.

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