The Bank is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and its related funding sources. The goal of the Bank’s interest rate risk management strategy is not to eliminate interest rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures which include guidelines on the amount of exposure to interest rate changes it is willing to accept.

The Bank enters into derivative contracts to manage the interest rate risk exposures inherent in its otherwise unhedged assets and funding positions. Finance Agency regulations and the Bank’s risk management policies establish guidelines for derivatives, prohibit the speculative use of derivatives, and limit credit risk arising from derivatives.

Derivative financial instruments are used by the Bank to achieve its financial and risk management objectives. The Bank reevaluates its hedging strategies periodically and may change the hedging techniques it uses or may adopt new strategies. The most common ways in which the Bank uses derivatives are to:

•preserve an interest rate spread between the yield of an asset and the cost of the related liability. Without the use of derivatives, this interest rate spread could be reduced or eliminated when a change in the interest rate on the asset does not match a change in the interest rate on the liability;

•Interest Rate Swaps. An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be exchanged and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional amount at a variable interest rate index for the same period of time. The variable interest rate received or paid by the Bank in derivative transactions is primarily the OIS rate, based on either federal funds or SOFR.

•Options. An option is an agreement between two entities that conveys the right, but not the obligation, to engage in a future transaction on some underlying security or other financial asset at an agreed-upon price during a certain period of time or on a specific date. Premiums or swap fees paid to acquire options are considered the fair value of the option at inception of the hedge and are reported as derivative assets on the Statements of Condition.

•Swaptions. A swaption is an option on a swap that gives the buyer the right to enter into a specified interest rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank against future interest rate changes. The Bank may enter into both payer and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

•Interest Rate Caps and Floors. In an interest rate cap agreement, a cash flow is generated if the price or interest rate of an underlying variable rises above a certain threshold (or “cap”) price. In an interest rate floor agreement, a cash flow is generated if the price or interest rate of an underlying variable falls below a certain threshold (or “floor”) price. Interest rate caps and floors are designed as protection against the interest rate on a variable rate asset or liability rising above or falling below a certain level.

•Futures/Forwards Contracts. Futures and forwards contracts give the buyer the right to buy or sell a specific type of asset at a specific time at a given price. For example, certain mortgage loan purchase commitments entered into by the Bank are considered derivatives. The Bank may hedge these commitments by selling TBA MBS for forward settlement. A TBA MBS represents a forward contract for the sale of MBS at a future agreed-upon date for an established price.

•Investment Securities. The Bank primarily invests in U.S. Treasury obligations, other U.S. obligations, GSE and TVA obligations, state or local housing agency obligations, and agency MBS, and classifies them as either trading, AFS, or HTM. The interest rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. To manage interest rate risk, the Bank may fund investment securities with callable consolidated obligations or utilize interest rate swaps, caps, floors, or swaptions. Derivatives held by the Bank that are associated with trading and HTM securities, if applicable, are economic hedges and derivatives held by the Bank associated with AFS securities are generally fair value hedges.

•Advances. The Bank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics, and optionality. The Bank may use derivatives to adjust the repricing and/or option characteristics of advances in order to more closely match the characteristics of its funding liabilities. When a borrower executes a fixed rate advance or a variable rate advance with embedded options, the Bank may simultaneously execute a derivative with terms that offset the terms and embedded options, if any, in the advance. For example, the Bank may hedge a fixed rate advance with an interest rate swap where the Bank pays a fixed rate coupon and receives a variable rate coupon, effectively converting the fixed rate advance to a variable rate advance. This type of hedge is typically treated as a fair value hedge. In addition, the Bank may hedge a callable advance, which gives the borrower the option to extinguish the fixed rate advance, by entering into a cancelable interest rate swap.

•Mortgage Loans. The Bank invests in fixed rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected repayment of these investments, depending on changes in actual and estimated prepayment speeds. The Bank manages the interest rate risk associated with mortgage loans through a combination of debt issuance and derivatives. The Bank may issue both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The Bank may also purchase interest rate caps, floors, or swaptions to minimize the interest rate risk embedded in mortgage assets. Although these derivatives are valid economic hedges, they are not specifically linked to individual mortgage assets and, therefore, do not receive fair value hedge accounting.

•Consolidated Obligations. The Bank may enter into derivatives to hedge the interest rate risk associated with its consolidated obligations. For example, the Bank may issue and hedge a fixed rate consolidated obligation with an interest rate swap where the Bank receives a fixed rate coupon and pays a variable rate coupon, effectively converting the fixed rate consolidated obligation to a variable rate consolidated obligation. This type of hedge is typically treated as a fair value hedge. The Bank may also issue variable interest rate consolidated obligations and simultaneously execute interest rate swaps to manage the interest rate risk of the variable interest rate debt. Interest rate swaps used to hedge variable interest rate debt do not qualify for hedge accounting and are treated as economic hedges. In addition, derivatives held by the Bank that are associated with consolidated obligations for which the fair value option has been elected are treated as economic hedges. This strategy of issuing consolidated obligations while simultaneously entering into derivatives enables the Bank to offer a wider range of attractively priced advances to its borrowers and may allow the Bank to reduce its funding costs.

•Firm Commitments. Certain mortgage loan purchase commitments are considered derivatives. The Bank normally hedges these commitments by selling TBA MBS for forward settlement. A TBA MBS represents a forward contract for the sale of MBS at a future agreed-upon date for an established price. The mortgage loan purchase commitment and the TBA used in the firm commitment hedging strategy are considered economic hedges. When the mortgage loan purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan and amortized over the contractual life of the mortgage loan using the level-yield method. The Bank may also hedge a firm commitment for a forward-starting advance through the use of an interest-rate swap, which is considered a fair value hedge.

The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

The following table summarizes the Bank’s notional amount and fair value of derivative instruments and total derivative assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest (dollars in millions):


	December 31, 2025						December 31, 2024
	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments (fair value hedges)
Interest rate swaps	$	162,769	$	237	$	29	$	99,170	$	200	$	60
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	23,176		3		—		55,732		1		—

Forward settlement agreements	111		—		—		91		1		—
Mortgage loan purchase commitments	106		—		—		101		—		—
Total derivatives not designated as hedging instruments	23,393		3		—		55,924		2		—
Total derivatives before netting and collateral adjustments	$	186,162	240		29		$	155,094	202		60
Netting adjustments and cash collateral1			(160)		(26)				602		(54)
Total derivative assets and derivative liabilities			$	80	$	3			$	804	$	6

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral, including accrued interest, held or placed with the same clearing agent and/or counterparty. At December 31, 2025 and 2024, cash collateral, including accrued interest, posted by the Bank was $3 million and $815 million. At December 31, 2025 and 2024, the Bank held cash collateral, including accrued interest, from clearing agents and/or counterparties of $137 million and $159 million.

The following tables summarize the net gains (losses) on qualifying fair value hedging relationships and the amortization of basis adjustments on discontinued fair value hedging relationships recorded in net interest income, including the net interest settlements on derivatives, as well as total income (expense) by product recorded on the Statements of Income (dollars in millions):


	For the Year Ended December 31, 2025
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Discount Notes		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	5,080	$	1,390	$	(2,829)	$	(4,578)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	(381)		(397)		7		57
Hedged items3	834		591		(17)		(78)
Net gains (losses) on fair value hedging relationships	$	453	$	194	$	(10)	$	(21)


	For the Year Ended December 31, 2024
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	6,013	$	1,484	$	(4,821)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	921		866		(182)
Hedged items3	(65)		(521)		(3)
Net gains (losses) on fair value hedging relationships	$	856	$	345	$	(185)


	For the Year Ended December 31, 2023
	Interest Income (Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income (expense) recorded on the Statements of Income1	$	6,533	$	1,203	$	(5,392)
Gains (losses) on fair value hedging relationships
Interest rate contracts
Derivatives2	328		119		(37)
Hedged items3	486		245		(243)
Net gains (losses) on fair value hedging relationships	$	814	$	364	$	(280)

1 Amounts shown to give context to the disclosure and include total interest income (expense) of the products indicated, including coupon, prepayment fees, amortization, and derivative net interest settlements. Interest income (expense) amounts also include gains and losses on derivatives and hedged items in fair value hedging relationships.


	December 31, 2025
	Advances		AFS Securities		Consolidated Obligation Discount Notes		Consolidated Obligation Bonds
Amortized cost of hedged asset/liability1	$	58,516	$	19,983	$	61,439	$	20,546
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	$	82	$	(315)	$	17	$	56
Basis adjustments for discontinued hedging relationships included in amortized cost	(10)		(42)		—		—
Total amount of fair value hedging adjustments	$	72	$	(357)	$	17	$	56


	December 31, 2024
	Advances		AFS Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/liability1	$	57,580	$	17,631	$	22,166
Fair value hedging adjustments
Changes in fair value for active hedging relationships included in amortized cost	$	(733)	$	(922)	$	(21)
Basis adjustments for discontinued hedging relationships included in amortized cost	(28)		(26)		(1)
Total amount of fair value hedging adjustments	$	(761)	$	(948)	$	(22)



	For the Years Ended December 31,
	2025		2024		2023
Derivatives not designated as hedging instruments (economic hedges)
Interest rate swaps	$	(69)	$	44	$	45
Forward settlement agreements	(4)		1		2
Mortgage loan purchase commitments	4		(2)		(4)
Net interest settlements	17		(37)		(52)
Total net gains (losses) related to derivatives not designated as hedging instruments	(52)		6		(9)
Price alignment amount1	1		2		(32)
Net gains (losses) on derivatives	$	(51)	$	8	$	(41)

1 Represents the price alignment amount on derivatives for which variation margin is characterized as a daily settled contract. The price alignment amount on variation margin for daily settled derivative contracts designated as hedging instruments is recorded in the same line item as the earnings effect of the hedged item.

The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative contracts. The Bank manages credit risk through credit analysis of derivative counterparties, collateral requirements, and adherence to the requirements set forth in the Bank’s policies, CFTC regulations, and Finance Agency regulations.

The Bank transacts most of its derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty, referred to as uncleared derivatives, or cleared through a clearing agent with a clearinghouse, referred to as cleared derivatives. Once a derivative transaction has been accepted for clearing by a clearinghouse, the derivative transaction is novated and the executing counterparty is replaced with the clearinghouse. The Bank is not a derivative dealer and does not trade derivatives for short-term profit.

For uncleared derivatives, the degree of credit risk is impacted by the extent to which master netting arrangements are included in the derivative contracts to mitigate the risk. The Bank requires collateral agreements on its uncleared derivatives.

Uncleared derivative transactions executed on or after September 1, 2022 are subject to two-way initial margin requirements if the Bank’s aggregate uncleared derivative transactions exposure to a counterparty exceeds a specified threshold. The initial margin is required to be held at a third-party custodian and does not change ownership. Rather, the party in respect of which the initial margin has been posted to the third-party custodian will have a security interest in the amount of initial margin required under the uncleared margin rules and can only take ownership upon the occurrence of certain events, including an event of default due to bankruptcy, insolvency, or similar proceeding. As of December 31, 2025, the Bank was not required to post initial margin on its uncleared derivative transactions in accordance with the noted regulation.

For cleared derivatives, the clearinghouse is the Bank’s counterparty. The Bank utilizes two clearinghouses, CME Clearing, and LCH Ltd., for all cleared derivative transactions. CME Clearing and LCH Ltd. notify the clearing agent of the required initial margin and daily variation margin requirements, and the clearing agent in turn notifies the Bank.

Each clearinghouse determines initial margin requirements which can be either cash or securities collateral. Generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including, but not limited to, credit rating downgrades. The Bank was not required to post additional initial margin by its clearing agent, based on credit considerations, at December 31, 2025. Variation margin requirements with each clearinghouse are based on changes in the fair value of cleared derivatives and are legally characterized as daily settlement payments, rather than cash collateral.

The requirement that the Bank post initial and variation margin through the clearing agent, to the clearinghouse, exposes the Bank to institutional credit risk if the clearing agent or the clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral/payments for changes in the fair value of cleared derivatives is posted daily through a clearing agent.

The Bank presents derivative instruments, related cash collateral received or pledged, and associated accrued interest on a net basis by clearing agent and/or by counterparty when it has met the netting requirements. Additional information regarding these agreements is provided in “Note 1 — Summary of Significant Accounting Policies.”

The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and has determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default, including a bankruptcy, insolvency, or similar proceeding involving the clearinghouse or the clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular clearinghouse.


	December 31, 2025
	Derivative Instruments Meeting Netting Requirements
	Gross Amount Recognized1		Gross Amounts of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements2		Total Derivative Assets and Total Derivative Liabilities		Non-cash Collateral Not Offset - Can be Sold or Repledged		Net amount3
Derivative Assets
Uncleared derivatives	$	159	$	(158)	$	—	$	1	$	—	$	1
Cleared derivatives	81		(2)		—		79		—		79
Total	$	240	$	(160)	$	—	$	80	$	—	$	80
Derivative Liabilities
Uncleared derivatives	$	27	$	(24)	$	—	$	3	$	—	$	3
Cleared derivatives	2		(2)		—		—		—		—
Total	$	29	$	(26)	$	—	$	3	$	—	$	3


	December 31, 2024
	Derivative Instruments Meeting Netting Requirements
	Gross Amount Recognized1		Gross Amounts of Netting Adjustments and Cash Collateral		Derivative Instruments Not Meeting Netting Requirements2		Total Derivative Assets and Total Derivative Liabilities		Non-cash Collateral Not Offset - Can be Sold or Repledged		Net amount3
Derivative Assets
Uncleared derivatives	$	181	$	(180)	$	—	$	1	$	—	$	1
Cleared derivatives	21		782		—		803		—		803
Total	$	202	$	602	$	—	$	804	$	—	$	804
Derivative Liabilities
Uncleared derivatives	$	57	$	(51)	$	—	$	6	$	—	$	6
Cleared derivatives	3		(3)		—		—		—		—
Total	$	60	$	(54)	$	—	$	6	$	—	$	6