DEFINITION of Master Notes

Master notes are short-term debt instruments issued by the Federal Farm Credit Banks Funding Corp. Master notes are high-quality fixed-income securities used to provide loans to rural communities and the U.S. agricultural sector.


Because master notes are offered with a minimum face value of $25 million, they are typically an appropriate investment only for large money managers. Master notes mature in one year and pay a coupon indexed to LIBOR or another appropriate index. Money managers value these notes highly owing to their high liquidity, as well as the fact that the principal amount can be adjusted 25% in either direction. They can also be used as underlying collateral in put or a call.

What is the Federal Farm Credit Banks Funding Corp.?

Based in Hoboken, N.J., the Federal Farm Credit Banks Funding Corp. manages various debt issuances on behalf of the banks in the Federal Farm Credit System. The system is a group of roughly 100 financial institutions in the United States and Puerto Rico designed to provide funding to the U.S. farming and agricultural sectors. The Federal Farm Credit Banks Funding Corp. also provides consulting, accounting, and financial reporting services to banks.

The corporation distributes Farm Credit Debt Securities, such as discount notes, designated bonds, floating-rate bonds, fixed-rate bonds and retail bonds to various investors, including commercial banks, states, municipalities, pension and money-market funds, insurance companies, investment advisers, corporations, foreign banks and governments, and other investors in the United States and internationally. It markets and distributes securities through dealers.

Banks in the system cannot hold deposits, so debt issuances are their main source of funding. Although the debt securities are not guaranteed by the U.S. government, the Federal Farm Credit System possesses a farm credit insurance fund, which would supply principal and interest payments should a system bank go bankrupt. System institutions are federally chartered under the Farm Credit Act and are subject to supervision, examination and regulation by a federal agency, the Farm Credit Administration.

Suitability of Master Notes

According to the Federal Farm Credit Banks Funding Corp., investors should have sufficient knowledge and experience in financial and business matters to evaluate the notes, as well as the merits and risks of investing in them. In addition, investors should have access to, and knowledge of, appropriate analytical tools. No investor should purchase a note unless the investor understands and has sufficient financial resources to bear the price, yield, market, liquidity, structure, redemption and other risks associated with it.