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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
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- 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.
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| Common Uses |
- Provides protection from rising rates; typically at a lower cost than the Capped Floater advance.
- Effective in managing balance-sheet interest-rate
sensitivity within a certain interest-rate band.
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| Maturities |
- Available in terms of one to 10 years.
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| 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.
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| Interest Calculation |
- Interest due on rate-adjustment dates.
- Interest is calculated on an actual/360-day basis.
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| Minimum |
- $10 million minimum but smaller requests may be
accommodated in special offerings.
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| Disbursement
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- Typically disburses in two business days. Corridor advances can be requested until 1:00 p.m. on a Boston and London business day for a second-day (spot) disbursement.
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| Prepayment |
- The floating-rate funding is prepayable, in whole or in part, on any rate-reset date without fee with two business-days notice. However, a member may be charged a fee to make the Bank financially indifferent to the member’s decision to unwind the embedded Corridor feature.
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| 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 for a discussion
of the risks and other considerations associated
with the Corridor advance.
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| More Information |
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