Company: AGM-PH
Filing Date: 2025-02-21
Form Type: 10-K
Source: 0000845877-25-000033
Chunk: 234

Company: FEDERAL AGRICULTURAL MORTGAGE CORP
Filing Date: 2025-02-21
Form: 10-K
Item: Item 7
Chunk 234
---
 Treasury Notes increasing by about 69 basis points.. This shift in rates contributed to an extension in the duration of Farmer Mac's funded assets relative to its liabilities and financial derivatives.

Financial Derivatives Transactions

The economic effects of financial derivatives are included in Farmer Mac's MVE, NES, and duration gap analyses. Farmer Mac typically enters into the following types of financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of interest-earning assets, future cash flows, and debt issuance, and not for trading or speculative purposes:

•"pay-fixed" interest rate swaps, in which Farmer Mac pays fixed rates of interest to, and receives floating rates of interest from, counterparties;

•"receive-fixed" interest rate swaps, in which Farmer Mac receives fixed rates of interest from, and pays floating rates of interest to, counterparties;

•"basis swaps," in which Farmer Mac pays floating rates of interest based on one index to, and receives floating rates of interest based on a different index from, counterparties; and

•exchange-traded futures contracts involving U.S. Treasury securities.

As of December 31, 2024, Farmer Mac had $24.9 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to approximately thirty years, of which $10.4 billion were pay-fixed interest rate swaps, $13.9 billion were receive-fixed interest rate swaps, and $0.7 billion were basis swaps.

Farmer Mac enters into interest rate swaps to more closely match the cash flow and duration characteristics of its interest-earning assets with those of its debt. For example, Farmer Mac transacts pay-fixed interest rate swaps and issues floating rate debt to effectively create fixed rate funding that approximately matches the duration of the corresponding fixed rate assets being funded. Farmer Mac evaluates the overall cost of using interest rate swaps in conjunction with debt issuance as a funding 

102

alternative to duration-matched debt and enters into interest rate swaps to manage interest rate risks across the balance sheet. 

Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available-for-sale or liabilities to protect against fair value changes in the assets or liabilities related to a benchmark interest rate (e.g. SOFR). Also, certain financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt.

As discussed in Note 6 to the consolidated financial statements, all financial derivatives are recorded on the balance sheet at fair value