Agency Bond:
A type of bond issued by a government-sponsored agency, such as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or a government-owned corporation, such as the Tennessee Valley Authority (TVA). These bonds are not directly backed by the full faith and credit of the government, but they are considered to have a lower risk compared to corporate bonds due to the implicit or explicit guarantee provided by the issuing agency. Agency bonds typically offer higher yields than Treasury bonds, making them attractive to income-seeking investors. They are commonly used to finance specific projects or initiatives in sectors such as housing, agriculture, or infrastructure.
An agency bond is a type of debt security issued by a government-sponsored entity (GSE) or a federal agency. These bonds are not directly issued by the government itself but are backed by the full faith and credit of the United States government.
The purpose of agency bonds is to provide funding for specific government-sponsored programmes or initiatives, such as housing, education, or agriculture. The GSEs, or federal agencies, that issue these bonds include entities like Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
Investors who purchase agency bonds are essentially lending money to these GSEs or federal agencies, and in return, they receive periodic interest payments and the return of their principal amount at maturity. The interest rates on agency bonds are typically higher than those on Treasury bonds due to the perceived higher risk associated with these bonds.
Agency bonds are considered relatively safe investments because of the implicit guarantee provided by the U.S. government. However, they are not backed by the full faith and credit of the government, meaning that in the event of default, the government is not legally obligated to repay the bondholders.
In summary, agency bonds are debt securities issued by government-sponsored entities or federal agencies to fund specific programmes. They offer investors a relatively safe investment option with higher interest rates than Treasury bonds, but they are not fully guaranteed by the U.S. government.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 11th April 2024.
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