Consolidated Obligations

6 Months Ended

Jun. 30, 2011

Consolidated Obligations

Consolidated Obligations

NOTE 9 – CONSOLIDATED OBLIGATIONS

Consolidated obligations consist of consolidated bonds and discount notes and, as provided by the Bank Act or Finance Agency regulation, are backed only by the financial resources of the FHLBanks. The FHLBanks jointly issue consolidated obligations with the Office of Finance acting as their agent. The Office of Finance tracks the amounts of debt issued on behalf of each FHLBank. In addition, the FHLBank separately tracks and records as a liability its specific portion of consolidated obligations for which it is the primary obligor. The FHLBank utilizes a debt issuance process to provide a scheduled monthly issuance of global bullet consolidated obligation bonds. As part of this process, management from each of the FHLBanks determine and communicate a firm commitment to the Office of Finance for an amount of scheduled global debt to be issued on its behalf. If the FHLBanks' orders do not meet the minimum debt issue size, the proceeds are allocated to all FHLBanks based on the larger of the FHLBank's commitment or allocated proceeds based on the individual FHLBank's capital to total system capital. If the FHLBanks' commitments exceed the minimum debt issue size, the proceeds are allocated based on relative regulatory capital of the FHLBanks with the allocation limited to the lesser of the allocation amount or actual commitment amount.

The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance. The FHLBanks can, however, pass on any scheduled calendar slot and not issue any global bullet consolidated obligation bonds upon agreement of 8 of the 12 FHLBanks. Consolidated obligation bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits as to maturities. Consolidated obligation discount notes, which are issued to raise short-term funds, are issued at less than their face amounts and redeemed at par when they mature.

Consolidated Obligation Bonds: The following table presents the FHLBank's participation in consolidated obligation bonds outstanding as of June 30, 2011 and December 31, 2010 (in thousands):

Year of Maturity	06/30/2011		12/31/2010
	Amount	Weighted Average Interest Rate	Amount	Weighted Average Interest Rate
Due in one year or less	$6,409,420	1.35%	$5,880,320	1.91%
Due after one year through two years	2,913,300	2.04	3,622,300	1.63
Due after two years through three years	2,132,500	3.01	2,699,000	2.70
Due after three years through four years	1,516,000	2.54	1,452,500	2.96
Due after four years through five years	1,384,500	2.90	883,000	2.51
Thereafter	7,535,000	3.75	6,755,500	3.64
Total par value	21,890,720	2.61%	21,292,620	2.61%
Premium	55,353		52,342
Discount	(8,688)		(10,321)
Hedging adjustments1	168,463		186,794
TOTAL	$22,105,848		$21,521,435

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¹ See Note 7 for a discussion of: (1) the FHLBank's objectives for using derivatives; (2) the types of assets and liabilities hedged; and (3) the accounting for derivatives and the related assets and liabilities hedged.

Consolidated obligation bonds are issued with either fixed rate coupon or variable rate coupon payment terms. Variable rate coupon bonds use a variety of indices for interest rate resets including LIBOR, Constant Maturity Treasuries (CMT) and Eleventh District Cost of Funds Index (COFI). In addition, to meet the specific needs of certain investors in consolidated obligation bonds, fixed rate and variable rate bonds may contain certain features that may result in complex coupon payment terms and call features. When the FHLBank issues such structured bonds that present interest rate or other risks that are unacceptable to the FHLBank, it will simultaneously enter into derivatives containing offsetting features that effectively alter the terms of the complex bonds to the equivalent of simple fixed rate coupon bonds or variable rate coupon bonds tied to indices such as those detailed above.

The FHLBank's participation in consolidated obligation bonds outstanding as of June 30, 2011 and December 31, 2010 includes callable bonds totaling $8,691,000,000 and $7,655,500,000, respectively. The FHLBank uses the unswapped callable bonds for financing its callable advances (Note 4), MBS (Note 3) and MPF mortgage loans (Note 5). Contemporaneous with a majority of its fixed rate callable bond issues, the FHLBank will also enter into interest rate swap agreements (in which the FHLBank generally pays a variable rate and receives a fixed rate) with call features that mirror the options in the callable bonds (a sold callable swap). The combined sold callable swap and callable debt transaction allows the FHLBank to obtain attractively priced variable rate financing.

The following table summarizes the FHLBank's participation in consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of June 30, 2011 and December 31, 2010 (in thousands):

Year of Maturity or Next Call Date	06/30/2011	12/31/2010
Due in one year or less	$13,433,420	$11,723,820
Due after one year through two years	4,050,300	4,624,300
Due after two years through three years	2,098,500	2,770,000
Due after three years through four years	691,000	722,500
Due after four years through five years	637,500	236,000
Thereafter	980,000	1,216,000
TOTAL PAR VALUE	$21,890,720	$21,292,620

The following table summarizes interest rate payment terms for consolidated obligation bonds as of June 30, 2011 and December 31, 2010 (in thousands):

	06/30/2011	12/31/2010
Par value of consolidated obligation bonds:
Fixed rate	$14,233,720	$14,586,120
Variable rate	4,118,500	3,713,500
Step ups/ step downs	2,648,000	2,773,000
Range bonds	890,500	220,000
TOTAL PAR VALUE	$21,890,720	$21,292,620

As of June 30, 2011 and December 31, 2010, 41.6 percent and 44.0 percent, respectively, of the FHLBank's fixed rate consolidated bonds were swapped to a floating rate, and 72.6 percent and 75.0 percent, respectively, of the FHLBank's variable rate consolidated bonds were swapped to a different variable rate index.

Consolidated Discount Notes: Consolidated discount notes are issued to raise short-term funds. Consolidated discount notes are consolidated obligations with original maturities of up to one year. These consolidated discount notes are issued at less than their face amount and redeemed at par value when they mature.

The following table summarizes the FHLBank's participation in consolidated obligation discount notes, all of which are due within one year (in thousands):

	Book Value	Par Value	Weighted Average Interest Rates
June 30, 2011	$9,785,708	$9,786,761	0.07%
December 31, 2010	$13,704,542	$13,706,746	0.16%

As of June 30, 2011 and December 31, 2010, 1.1 percent and 7.2 percent, respectively, of the FHLBank's fixed rate consolidated discount notes were swapped to a floating rate.