The Federal Farm Credit System (FFCS) established by Congress in 1916 is the oldest GSE. Its mission is to provide a steady source of low-costcred it to the U.S. agricultural sector. The FFCS lends money to farmers through a network of borrower-owned financial institutions and related service organizations. Six Farm Credit Banks and one Agricultural Credit Bank make direct long-term real estate loans to farmers through 32 FederalLand Bank Associations.The banks also provide loan funds to various credit associations, which in turn make short-, intermediate-, and long-term loans to farmers. The FFCS is regulated by the Farm Credit Administration. Unlike the agencies discussed to this point, the FFCS doesnot maintain a direct line of credit with the U.S. Treasury.

Bloomberg Security Description Screen of a Federal Farm Credit System Security

Bloomberg Security Description Screen of a Federal Farm Credit System Security

Discount Notes

Under the Farm Credit Act, the FFCS issues debt through the FederalFarm Credit Banks Funding Corporation that serves as the FFCS’s fiscalagent. The Funding Corporation currently issues System wide Bonds, Discount Notes, Master Notes, and Global Debt Securities. The discount notes are unsecured, joint obligations of the FFCS. As of January 31,2001, the FFCS had $19.7 billion in discount notes outstanding. By statue, the FFCS is currently authorized to have up to $25 billion in aggregate par amount of discount notes outstanding at any one time.Maturities range from overnight to 365 days with the majority having maturities of less than 90 days. Minimum face values are $5,000 and then in $1,000 increments. All discount notes have cash settlement.

Interest at Maturity Securities

The FFCS also issues short-term securities with maturities less than one year that are issued at par and pay interest at maturity. Figure below presents a Bloomberg DES (Security Description) screen for an interest at maturity security that looks much like the CDs.

This security was issued by the FFCS on August 1, 2001 and matured on November 1, 2001. Note that unlike most of securities discussed in this book, the day count convention is 30/360.

On the issuance date August 1, 2001, the yield on this security was 3.52% as can be seen from the upper left-hand side of the screen.Accordingly, the interest at maturity is determined by multiplying the face value, the yield at issuance, and the fraction of a year using a 30/360 day count convention. With the 30/360 day count, all months are assumed to have 30 days and all years are assumed to have 360 days.There are 90 days between August 1, 2001 and November 1, 2001 using a 30/360 day count convention.

The interest at maturity is computed as follows assuming a $1 millionface value:

$1,000,000 × 0.0352 × (90/360) = $8,800

Figure below presents a Bloomberg Yield Analysis (YA) screen for this security. Suppose a $1,000,000 face value is purchased with a settlement day of September 21, 2001 for the full price (i.e., flat price plus accrued interest) of $1,006,150.03 as can be seen from the “PAYMENT INVOICE” box on the right-hand side of the screen. We know the investor receives $1,008,800 at maturity, so the if buyer holds the security until maturity, she will receive the difference of $2,649.97. This calculation agrees with the “GROSS PROFIT” on the right-hand side of the screen.

A yield calculation which may require some explanation is labeled “DISCOUNT EQUIVALENT” in Exhibit . This security is similar to a discount security in that the security does not pay a cash flow until maturity.The discount equivalent yield puts discount notes which are quoted on a bank discount basis and interest at maturity securities on the samebasis. Namely, suppose the face value of the security is $1,008,800 and the security full price’s is $1,006,150.03. What is the yield on the bank discount basis? To see this, recall the formula for the dollar discount (D):

D = Yd × F × (t/360)


Yd = discount yield

F = face value

t = number of days until maturity

Bloomberg Yield Analysis Screen of a Federal Farm Credit System Security

Bloomberg Yield Analysis Screen of a Federal Farm Credit System Security

In this case, the face value is $1,008,800, the dollar discount is $2,649.97, and the actual number of days until maturity is 41 since discount securities use an Actual/360 day count convention. Inserting these numbers into the formula gives us:

$2,649.97 = Yd × $1,008,800 × (41/360)

Solving for Yd gives us:

Yd = 0.02306504 = 2.306504%

The calculation agrees with the yield calculation displayed in the “YIELD CALCULATIONS” box on the left-hand side of the screen in Figure below.

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