Freddie Mac 2015 Annual Report Download - page 73

Management's Discussion and Analysis Our Business Segments | Investments
Freddie Mac 2015 Form 10-K 71
We may undertake various activities in an effort to support our presence in the agency securities market
or to support the liquidity of our PCs, including the price performance relative to comparable Fannie Mae
securities. These activities may include the purchase and sale of agency securities, the purchase of
loans, dollar roll transactions, and structuring activities, such as resecuritization of existing agency
securities and the sale of some or all of the resulting securities. Depending upon market conditions, there
may be substantial variability in any period in the total amount of securities we purchase or sell. In some
cases, the purchase or sale of agency securities could adversely affect the price performance of our PCs
relative to comparable Fannie Mae securities.
We incur costs in connection with our efforts to support our presence in the agency securities market and
to support the liquidity and price performance of our PCs, including by engaging in transactions that yield
less than our target rate of return. For more information, see “Risk Factors - Other Risks - A significant
decline in the price performance of or demand for our PCs could have an adverse effect on the volume
and/or profitability of our new single-family guarantee business. The profitability of our multifamily
business could be adversely affected by a significant decrease in demand for our K Certificates.”
Funding and Liquidity Management Activities
Our Treasury function manages the funding needs of the company, including the Investments segment,
primarily through the issuance of unsecured other debt. The type and term of debt issued is based on a
variety of factors and is designed to efficiently meet our ongoing cash needs and to comply with our
Liquidity Management Framework. This Framework provides a mechanism for us to sustain significant
periods of market illiquidity, while being able to maintain certain business activities and remain current on
all obligations. See "Liquidity and Capital Resources - Liquidity Management Framework" for additional
discussion of our Liquidity Management Framework.
We use the following types of products as part of our funding and liquidity management activities:
• Discount Notes and Reference Bills - We issue short-term instruments with maturities of one year
or less. These products are generally sold on a discounted basis, paying principal only at maturity.
Reference Bills are auctioned to dealers on a regular schedule, while discount notes are issued in
response to investor demand and our cash needs.
• Medium-term Notes - We issue a variety of fixed-rate and variable-rate medium-term notes,
including callable and non-callable fixed-rate securities, and zero-coupon securities, with various
maturities.
• Reference Notes Securities - Reference Notes securities are non-callable fixed-rate securities,
which we currently issue with original maturities greater than two years.
To maintain sufficient short-term liquidity, we may hold a combination of cash, cash-equivalent, and non-
mortgage-related investments in our liquidity and contingency operating portfolio. These instruments are
limited to those we expect to be liquid and readily convertible into cash. We also lend available cash on a
short-term basis through transactions where we purchase securities under agreements to resell. This
portfolio is designed to allow us to meet all of our obligations in the event that we lose access to the
unsecured debt markets for a period of time.
Interest-Rate and Other Risk Management Activities
Our goal is to manage the economic interest-rate risk for the company within management approved
levels, as measured by our models. See "Risk Management - Interest-Rate Risk and Other Market Risks”