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December 3 , 2008

By Marianne Cacciola, Financial Strategist, Federal Home Loan Bank of Boston

The volatile swings of long-term funding levels have left many financial institution managers in a quandary as to when to extend funding beyond the generously low overnight rates.  Since the alarm bells started to ring in early 2007, signaling the beginning of the meltdown in the financial arena, the five-year Classic advance has pierced through the 3.50 percent level four times. December 3 was one of those days. 

Since the close of the third quarter, the five-year Classic advance rate has swung between 5.13 percent and 3.37 percent, showing a volatile movement of 176 basis points within three months.  Current long-term levels reveal an opportune time to hedge balance sheets sensitive to rising rates, and also present an attractive funding source for institutions interested in leverage opportunities.