Interest Rate Outlook and FHLB Member Activities

Transcription

1 Interest Rate Outlook and FHLB Member Activities Jason Hwang Director, Financial Strategies, Research, and Membership Applications Kevin Martin Manager, Member Financial Strategies January 29, 2014

2 Legal Disclaimer This webinar is being presented for general information purposes only. The information contained herein was obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Members should not construe any of this information as business, legal, tax, or accounting advice from the Bank. Members should consult with their own independent business, legal, tax, and accounting advisers with respect to any material presented here. This information does not constitute an offer to engage in any transaction. This webinar is being recorded 2

3 Today s Agenda Interest-Rate Outlook Fed Forward Guidance Janet Yellen s Labor Market Dashboard FOMC Outlook Market Outlook FHLB Member Outlook FHLB Boston Member Activities FHLB Boston Advance Curve Long-Term Advance Special, Friday, January 31 3

4 Fed Forward Guidance A Year Ago December 2012 Fed Guidance: Target rate for fed funds rate of zero to 25 basis points will be appropriate as long as Unemployment rate remains above 6.5% Expected inflation one and two years ahead is projected to be no higher than 2.5% per year Longer-term inflation expectations continue to be well-anchored. As of December 2013: Unemployment rate: 6.7% Inflation: 1.5% Long-term inflation expectations low 4

5 Fed Forward Guidance Now December 2013 Fed Guidance: The Committee also reaffirmed [the December 2012 guidance]. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. 5

6 Janet Yellen s Labor Market Dashboard I will discuss some of the additional indicators I plan to consider in judging the strength of the labor market in connection with the Committee s current asset purchase program. 1. Unemployment Rate 2. Payroll Employment Growth 3. Rate of Hiring 4. Rate of Quitting 5. Overall Spending and Growth in Economy Janet Yellen, March 4,

7 Payroll Employment Growth 7

8 Activity Rate: Aged

9 FOMC Outlook on Fed Funds Rate As of December 18,

10 Market Outlook on Fed Funds Rate As of January 27,

11 Market Outlook on Fed Funds Rate (continued) As of January 27,

12 Market Outlook on Fed Funds Rate (continued) As of January 27,

13 FHLB Boston Member Survey January 24-27, 2014 When do you think the fed funds rate will start to increase? (n=140) By the End of % First Half of % Second Half of % After % 13

14 Real GDP Growth In Recent Quarters 4.5% 4.0% 3.5% 3.7% 4.1% 3.0% 2.5% 2.0% 2.8% 2.5% 1.5% 1.0% 1.2% 1.1% 0.5% 0.0% 0.1% 2012q1 2012q2 2012q3 2012q4 2013q1 2013q2 2013q3 14

15 U.S. Real GDP Growth Outlook Projection As Of IMF 1/21/ % 3.0% Conference Board 1/15/ % 2.8% FOMC 12/18/ % 2.9% Survey of Professional Forecasters 11/25/ % 2.8% 15

16 FHLB Member Outlook on 10-Year Treasury Rates The yield on 10-year treasury notes is currently around 270 basis points. How much higher do you think the yield will be at the end of 2014? More or less the same 36% 50 basis points higher 58% 100 basis points higher 5% More than 100 basis points higher 1% 16

17 2013 Long-Term Advance Activity Survey in late 2012 indicated FHLB members are concerned with IRR During 2013 members borrowed $3.2B in long-term advances: $2.2B in long-term advances $0.7B in long-term advances under the Bank s Community Development advance programs $0.3B in restructured advances 17

18 FHLB Boston Advance Rates 4.00% 3.50% Jan. 27, % June 25, % Jan. 28, % 1.50% Dec. 6, % 0.50% 0.00% 1W 1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 18

19 One year ago Jan. 28, 2013 FHLB Boston Implied Forward Advance Rates Years to Maturity Jan 0.38% 0.69% 0.86% 1.08% 1.37% 1.69% 1.95% 2.23% 2.44% 2.66% Y E A R S F O R W A R D % 1.10% 1.32% 1.64% 1.99% 2.27% 2.58% 2.80% 3.05% % 1.48% 1.85% 2.24% 2.52% 2.84% 3.06% 3.31% % 2.17% 2.58% 2.85% 3.17% 3.37% 3.61% % 3.00% 3.22% 3.53% 3.70% 3.92% % 3.54% 3.84% 3.98% 4.19% 19

20 Earlier this week FHLB Boston Implied Forward Advance Rates Years to Maturity January % 0.77% 1.19% 1.70% 2.10% 2.60% 2.98% 3.36% 3.57% 3.78% Y E A R S F O R W A R D % 1.60% 2.17% 2.58% 3.14% 3.55% 3.98% 4.19% 4.41% % 2.68% 3.06% 3.64% 4.03% 4.46% 4.63% 4.83% % 3.57% 4.17% 4.54% 4.94% 5.07% 5.23% % 4.61% 4.95% 5.36% 5.42% 5.56% % 5.51% 5.87% 5.82% 5.91% 20

21 Key Products Symmetrical Prepayment Special prepayment feature that allows the member to prepay the advance at its approximate market value Flipper Potential to monetize a gain in a rising rate scenario Lower prepayment fee than corresponding Classic advance in all rate scenarios Hybrid floating- to fixed-rate advance with sub-libor funding available during lock-out period FHLB Boston can cancel funding at the end of the lock-out period During lock-out period rate can reset less than zero 21

22 Symmetrical Prepayment Advance Estimated Prepayment Table 5 Year FHLB Classic Advance Start Date - 01/27/2014 Maturity Date - 01/27/2019 Rate 2.10% Estimated Prepayment Fees Remaining Prepayment Term Date -150 bp -100 bp -50 bp Base +100 bp +200 bp +300 bp 5 1/27/ % -6.61% -4.15% -1.76% 0.00% 0.00% 0.00% 4 1/27/ % -6.94% -4.90% -2.95% 0.00% 0.00% 0.00% 3 1/27/ % -6.27% -5.22% -3.72% -0.81% 0.00% 0.00% 2 1/27/ % -4.18% -4.18% -3.32% -1.36% 0.00% 0.00% 1 1/27/ % -2.09% -2.09% -1.95% -0.95% 0.00% 0.00% Note: Negative amounts are due to FHLB. Expressed as a percent of principal amount prepaid. 5 Year FHLB Symmetrical Prepayment Advance Start Date - 01/27/2014 Maturity Date - 01/27/2019 Rate 2.12% Estimated Prepayment Fees (Subject to 10% termination value limitation, including prepayment fee differential) Remaining Prepayment Term Date -150 bp -100 bp -50 bp Base +100 bp +200 bp +300 bp 5 1/27/ % -5.00% -2.52% -0.10% 4.55% 8.96% 9.91% 4 1/27/ % -5.66% -3.63% -1.65% 2.19% 5.86% 9.37% 3 1/27/ % -5.17% -4.04% -2.52% 0.42% 3.27% 6.02% 2 1/27/ % -3.45% -3.45% -2.43% -0.44% 1.50% 3.40% 1 1/27/ % -1.72% -1.72% -1.43% -0.43% 0.56% 1.53% 22

23 Flipper Advance 5Y/2Y - Euro 3mL was % on January 27 3mL less 23 bp for 2 years Starting rate % - reprices quarterly for 2 years at 3mL less 23 bp After 2 years advance may be cancelled If FHLB Boston does not cancel then advance is flipped to fixed-rate advance at 2.60% for final 3 years Note: 5-year Classic advance rate 2.10% 3-year Classic advance rate 1.19% 23

24 Product Solutions by Interest Rate Outlook Interest Rate Outlook Falling Rates Rates Unchanged Rising Rates Yield Curve Shape Fixed Rate S/T Classic HLB Option L/T Classic S/T Amortizer L/T Amortizer Member Option Symmetrical Prepay HLB Option Plus Cap Knockout Expander Classic Plus Cap Floating Rate LIBOR Floater Flipper Capped Floater Curve Flattener DN Auction Floater Collar Curve Steepener Slider Corridor 24

25 Upcoming Advance Special Classic Advances Friday, January to 10:45 a.m. Several terms between one and seven years Please contact the Money Desk