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PDFSustained Performance Strong primary market rates endure

Our portfolio lending strategy (PLS) continues to show good spreads time after time. The current PLS illustrates how our spreads remain wide this month mainly due to lower long-term advance rates at the beginning of October.

 
The chart below shows how the primary mortgage yields continue to be significantly better in comparison to agency MBS yields. This gap between the primary and secondary market yields has been ongoing for the last five years due to  the large guarantee fees FNMA and FHLMC charge to take on the credit risk of mortgage originations.  

 



The tables below provide several types of fixed and callable rate FHLBank advances you could use to fund mortgages. Any mix of these could be used in the PLS. When you combine low advance rates with continued high yields on mortgage originations, we continue to see wide margins when holding loans in portfolio as shown in the 15- and 30-year strategies.


Advance Rates

 

 

Advance costs remain low at the beginning
of the fourth quarter.




 

 

 

Funding Mix on 30-year Mortgages
The tables below illustrate the funding costs associated with the advances used for the 30-year strategy and detail the different advance types that were selected by the PLS model to fund these mortgages. This scenario utilizes equal amounts of callable rate advances and fixed rate advances  and results in a good risk-adjusted spread of 143 bps.

 

The graphs at the bottom demonstrate how the balances perform in an up 100 and down 100 rate environment. As shown in each graph, we are able to provide a funding mix with the flexibility to manage varying mortgage prepayment speeds. With that mix of callable and fixed rate advances, the result is a well-matched portfolio throughout different rate scenarios. 

 

 

 Funding Mix | Good use of callable and bullet advances
  




Versatile Funding | Use a combination of mortgages and advances

 

 

see our full analysis:

 

15-year Funding Strategy

30-year Funding Strategy


Jenny Whitehead image
Product Profitability and Pricing ManagerJenny Whitehead785.478.8052
Jenny has served in a number of analysis roles in her 12 years at FHLBank Topeka, including her current role as pricing manager. She is a graduate of Washburn University.
 
 

Address:

500 SW Wanamaker Road
Topeka, KS 66606

Phone:

785.233.0507

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