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SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 11/02/2018
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MD&A | Risk Management


For information on how we measure our interest rate risk, see our 2017 Form 10-K in “MD&A—Risk Management—Market Risk Management, Including Interest Rate Risk Management.”
Interest Rate Sensitivity of Net Portfolio to Changes in Interest Rate Level and Slope of Yield Curve
 
As of (1)(2)
 
September 30, 2018
 
December 31, 2017
 
(Dollars in millions)
Rate level shock:
 
 
 
 
 
 
 
-100 basis points
 
$
(193
)
 
 
 
$
(44
)
 
-50 basis points
 
(53
)
 
 
 
(21
)
 
+50 basis points
 
(30
)
 
 
 
(29
)
 
+100 basis points
 
(113
)
 
 
 
(122
)
 
Rate slope shock:
 
 
 
 
 
 
 
-25 basis points (flattening)
 
3

 
 
 
(17
)
 
+25 basis points (steepening)
 
(6
)
 
 
 
17

 
 
For the Three Months Ended September 30,(1)(3)
 
2018
 
2017
 
Duration Gap
 
Rate Slope Shock 25 bps
 
Rate Level Shock 50 bps
 
Duration Gap
 
Rate Slope Shock 25 bps
 
Rate Level Shock 50 bps
 
 
 
Market Value Sensitivity
 
 
 
Market Value Sensitivity

 
(In years)
 
(Dollars in millions)
 
(In years)
 
(Dollars in millions)
Average
0.01
 
 
$
(13
)
 
 
 
$
(51
)
 
 
0.00
 
 
$
(16
)
 
 
 
$
(26
)
 
Minimum
(0.01)
 
 
(22
)
 
 
 
(119
)
 
 
(0.04)
 
 
(46
)
 
 
 
(64
)
 
Maximum
0.07
 
 
(1
)
 
 
 
(30
)
 
 
0.02
 
 
(4
)
 
 
 
1

 
Standard deviation
0.02
 
 
6

 
 
 
17

 
 
0.02
 
 
8

 
 
 
15

 
__________
(1) 
Computed based on changes in LIBOR interest rates swap curve. Changes in the level of interest rates assume a parallel shift in all maturities of the U.S. LIBOR interest rate swap curve. Changes in the slope of the yield curve assume a constant 7-year rate, a shift of 16.7 basis points for the 1-year rate (and shorter tenors) and an opposite shift of 8.3 basis points for the 30-year rate. Rate shocks for remaining maturity points are interpolated.
(2) 
Measured on the last day of each period presented.
(3) 
Computed based on daily values during the period presented.
The market value sensitivity of our net portfolio varies across a range of interest rate shocks depending upon the duration and convexity profile of our net portfolio. Because the effective duration gap of our net portfolio was close to zero years in the periods presented, the convexity exposure was the primary driver of the market value sensitivity of our net portfolio as of September 30, 2018. In addition, the convexity exposure may result in similar market value sensitivities for positive and negative interest rate shocks of the same magnitude.
We use derivatives to help manage the residual interest rate risk exposure between our assets and liabilities. Derivatives have enabled us to keep our interest rate risk exposure at consistently low levels in a wide range of interest-rate environments. The table below displays an example of how derivatives impacted the net market value exposure for a 50 basis point parallel interest rate shock.
Derivative Impact on Interest Rate Risk (50 Basis Points)
 
As of (1)
 
September 30, 2018
 
December 31, 2017
 
(Dollars in millions)
Before derivatives
 
$
(600
)
 
 
 
$
(520
)
 
After derivatives
 
(30
)
 
 
 
(29
)
 
Effect of derivatives
 
570

 
 
 
491

 
__________
(1)
Measured on the last day of each period presented.

Fannie Mae Third Quarter 2018 Form 10-Q
48