Callable & Putable Bonds

For many years, the FHLBanks have been well-known issuers of callable bonds (also known as Optional Principal Redemption Bonds). The majority of FHLBank callables are "Bermudan" style, with multiple discrete call dates upon which the bond can be redeemed in whole or in part. A smaller percentage, referred to as "European" callables, have a single call date determined at issuance. Continuous call, or "American" style, callable bonds are also issued. Some issues combine styles - for example, callables have been issued with a quarterly call option that stops two years before maturity, effectively turning the callable bond into a bullet for the last two years.

Putable Bonds
Putable bonds are subject to repurchase by the FHLBanks at the request of the bondholder before the final stated maturity date. The ability to exercise the put option may depend upon certain market conditions or other criteria specified in the Offering Notice. If the bondholder wishes to exercise the put option, proper notification must be delivered to the Office of Finance. Generally, putable bonds are redeemable on interest payment dates after an initial lockout period.

Call Details
Call dates - The call dates for both Bermudan and European style bonds are defined at issuance. American style bonds can be called at any time between the date of issuance and maturity. In addition, official notice of upcoming calls is given on the Fedwire and may also be given through other financial wire services and this web site, generally five business days prior to the call date. Investor notification of upcoming calls should be made through the entity maintaining the book-entry account for the investor.

Lockout periods - All callable bonds have a lockout period - the period between issuance and the first potential call date. These periods may be as short as one month or as long as ten years or more. The lockout period for each bond is determined at issuance and is specified in the Offering Notice.

Amortizing Issues
Amortizing issues share with callable bonds the possibility of being redeemed partially or entirely before stated maturity dates. However, instead of the call option being exercised at the discretion of the FHLBanks, amortizing notes repay principal according to a formula or schedule defined at issuance. Indexed amortizing bonds repay a predetermined amount or percentage depending on the value of the selected reference index. Scheduled amortizing bonds repay principal according to a schedule defined in the offering documentation. Amortizing Prepayment-Linked Securities (APLS) are index amortizing bonds that are of multi-billion dollar size, and sold via syndicate.

Offering Notices
Call schedules, lockouts, amortization indices, and/or amortization schedules for a particular bond may be unique, so investors should understand these elements prior to making a purchase decision.

The options embedded in a particular bond are described in the Offering Notice for the bond. Offering Notices are unique for each issue, and should be read in conjunction with the Offering Circular. The dealer should provide these documents to the investor on or before settlement.

After settlement, Offering Notices are posted on Bloomberg and also available directly through this web site in the Details & Documentation section.