Freddie Mac-No Politics (FMCC)

[Phisherman]

http://www.fhlb-of.com/products/discountnotes.html

Discount Notes

Investor demand for short-term securities (one year or less) may be met through the FHLBanks' Discount Note Programs. All FHLBank DNs earn the highest credit ratings from both Moody's and S&P (P-1/A-1+), and all are exempt from state and local income tax for domestic investors. FHLBank DNs are characterized by competitive rates, efficient trade execution, and responsiveness to reverse inquiries.

The FHLBank System has long been the GSE leader in discount note issuance. In 2008, term DN issuance will likely exceed $2,500 billion. Overnight DN issuance has been averaging about $40 billion per day. The flexibility of FHLBank issuance practices allows nearly continuous opportunity for investors to obtain the right maturity at the right price, at the right time.

In January 2000, the System shifted its DN auctions to an internet-based platform. This change was intended to eliminate some manual intervention and redundancies that had previously existed, particularly in the bidding and awards process. The change was so successful that the DN Selling Group was expanded just three weeks after inception. During 2002, the DN Window was also migrated to the web. This has further enhanced the Program by providing the FHLBank Reallowance Group direct, interactive access to window offerings. These are two examples of how the FHLBank System seeks to improve liquidity and transparency in the agency debt market.

Rates and Maturities
Discount notes are available in maturities of one year or less, with the largest volume in the one- to 60-day range. Rates and maturity categories for both window and auctioned discount notes are set frequently and announced publicly on Telerate and through other major wire services. This information is also posted in real-time in the Securities Issuance section of this web site. DNs are priced at a discount using the actual number of days to maturity divided by 360. Upon maturity, the par value of the note is paid in full.

Purchase
Discount notes may be offered into the market through the window, or through regularly scheduled competitive auctions. DNs included through the window are priced daily and distributed through a 16 member (currently) Selling Group and a 70+ member Reallowance Group of FHLBank underwriters.

DNs are auctioned twice weekly, on Tuesdays and Thursdays, to the selling group members. Four standard maturities are available: 4-, 9-, 13-, and 26-weeks. Over 85 percent of DN maturities 25 days and longer are sold in this manner. At the majority of these auctions, these four maturities are available, generally in sizes from $500 million to over $5 billion each. The Office of Finance is responsive to reverse inquiry; dealers interested in specific dollar volume and/or maturities should contact the OF. Also, investors interested in FHLBank discount notes should contact their financial services provider. The size and variety of DNs (and bonds) available for sale is dependent on the FHLBanks' funding needs on a given day. FHLBank DNs are sold subject to a minimum of $100,000 and $1,000 increments. After issuance, DNs can be traded in the secondary market through securities dealers and banks.

Settlement and Delivery
Discount notes are generally available with same day, next business day, and two or more business day settlement, referred to as cash, regular, skip and skip plus, respectively. Settlement is in immediately available funds. DNs are issued in the U.S. only in book-entry form and are transferred through the Fedwire.

Disclosure
Discount note offerings are subject to the FHLBank Offering Circular for Consolidated Bonds and Consolidated Discount Notes, and as supplemented from time to time. The dealer should provide these documents to investors prior to or at settlement. They can be obtained in the Details and Documentation section of this web site.