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Source: Farm Credit System news release

The Farm Credit Administration board received a report on the Farm Credit System's (FCS or System) funding conditions. The report discussed recent factors impacting the overall $2 trillion agency debt market.

Both the System's debt volume outstanding and its portion of the agency debt market have been growing steadily. As of Dec. 31, 2016, the System's $258 billion in debt outstanding represented 13 percent of the agency debt market.

The report discussed how various factors have affected the cost of System debt, the processes it uses to issue debt, its ability to issue debt, and investor sentiment toward System debt. These factors include domestic and foreign monetary policies, recently implemented financial regulations, and the System's long-standing strong financial performance.

The report discussed trends in the System's interest rate spreads, the maturity profile of its outstanding debt, and the composition of its debt portfolio. It also discussed the composition of the System's investment portfolio, the primary purpose of which is to provide a ready source of liquidity in case the System's access to the debt market is interrupted.

According to the report, FCS debt yields have increased since December 2015 when the Federal Reserve increased the federal funds target range from the level set in December of 2008.

However, substantial volatility in 2016 gave the System the opportunity to exercise call options on $58 billion of callable debt, which was $5 billion more than the two previous years combined. Despite this sizeable spike in call volume, the System's net interest spread continued to decrease because of competitive pricing pressures on its assets.

Because the System's condition and performance remained solid in 2016, the System enjoyed favorable risk premiums on the debt it issued to investors. In addition, these risk premiums remained fairly constant even as FCS debt yields generally increased.

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