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Credit Products – Corridor Advance

The Corridor advance is a floating-rate advance that contains an embedded interest-rate corridor. The embedded corridor is a purchased, or "long," interest-rate cap (Cap 1) and a sold, or "short," interest-rate cap (Cap 2) at a higher strike. The sale of Cap 2 reduces the cost of the corridor as a whole. The corridor advance protects members from rates rising above the strike of Cap 1, but members give up some of this protection if rates rise above the strike of Cap 2. It can be a cost-effective solution for the member seeking protection against moderate increases in short-term interest rates.


 Key Features
  • Floating rate, nonamortizing

  • The cost of the term funding and the premium for the embedded corridor feature is included in the advance rate.

  • Members specify the term, index, and Cap 1 and Cap 2 strike rates based on their own interest-rate risk management objectives.
Common Uses
  • Provides protection from rising rates for a short (one- to three-year) time horizon

  • Fund adjustable-rate assets and realize a wider margin on the transactions as long as market rates remain within an interest-rate corridor.
Maturities
  • Available for terms out to 10 years.
Indices
  • Adjusts to either one-month or three-month London Interbank Offered Rate (LIBOR).

  • Resets on the anniversary of its disbursement (monthly or quarterly, equal to the term of the LIBOR), if it is a Boston business day.
Interest Calculation
  • Interest due on rate-adjustment dates.
  • Interest is calculated on an actual/360-day basis.
Minimum
  • $2 million minimum but smaller requests may be accommodated in special offerings.
Disbursement
  • Funds are available two business days after the trade date.
Prepayment
  • Advances may be prepaid subject to a fee. Partial prepayments may be in amounts as small as $100,000 and in intervals of $100,000 thereafter.
Risks
  • The Federal Home Loan Bank of Boston does not act as a financial adviser, and members should independently evaluate the suitability and risks of these advances. Please see the Corridor Advance Primer Adobe PDF icon for a discussion of the risks and other considerations associated with the Corridor advance.
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