Agency bonds | Vanguard (2024)

FAQs

What is an example of an agency bond? ›

These include the Federal housing administration (FHPA), Small business administration (SBA), Government national mortgage association ( GNMA or Ginnie Mae). Bonds issued by federal government agencies are generally guaranteed by the federal government, similar to treasuries.

Key Takeaways. Agency bonds are securities issued by U.S. government agencies or Government-Sponsored Entities (GSEs). Agency bonds are considered low-risk, although not as safe as U.S. Treasurys. Agency bonds can be callable and paid off by the borrower before they mature.

All agency bonds carry the credit risk that the issuer will default or will be unable to make timely payments of interest and principal.

The interest from most, but not all, agency bonds is exempt from local and state taxes. Farmer Mac, Freddie Mac, and Fannie Mae agency bonds are fully taxable. Agency bonds, when bought at a discount, may subject investors to capital gains taxes when they are sold or redeemed.

a government, corporation, municipality, or agency that has issued a security (e.g., a bond) in order to raise capital or to repay other debt; the issuer goes to an underwriter to get their securities sold in the new issue market; for certificates of deposit (CDs), this is the bank that has issued the CD; in the case ...

Agency bonds are typically issued through broker-dealers. The bonds are offered in maturity terms ranging from less than a year to 30-year. Some agency bonds may be callable and subject to call risk. Agency bonds are less liquid than treasury bonds and usually pay a slightly higher interest rate as compensation.

TreasuryDirect.gov is the one and only place to electronically buy and redeem U.S. Savings Bonds. We also offer electronic sales and auctions of other U.S.-backed investments to the general public, financial professionals, and state and local governments.

Agency bonds offer fixed and higher interest rates than treasury bonds, but they are also typically more volatile. Certain agency bonds can be called back by the bond issuer before their maturity date, enabling them to reap certain benefits.

Certain bond types that trade in more liquid markets—such as Treasurys and certain corporate bonds—may be easier to sell than most municipal bonds, where markets are thinner and less liquid. Selling before maturity can result in either a profit or a loss compared with the price you paid at purchase.

Call risk is the likelihood that a bond's term will be cut short by the issuer if interest rates fall. Default risk is the chance that the issuer will be unable to meet its financial obligations. Inflation risk is the possibility that inflation will erode the value of a fixed-price bond issue.

What are the two types of entities that issue agency bonds? ›

Agency Bonds are mainly issued by two types of entities: Government-Sponsored Enterprises (GSEs) and Federal Government Agencies. Examples include Freddie Mac, Fannie Mae, the Federal Home Loan Banks, the Tennessee Valley Authority and Ginnie Mae.

Interest from Treasuries is generally taxable at the federal level, but not at the state level. Interest from munis is generally exempt from federal taxes, and if you live in the state where the bond was issued, the interest may also be exempt from state taxes.

Because agency bonds have more credit risk (that is, the risk that they will fail to make timely interest payments or even, in a worst-case scenario, fail to repay principal) than Treasuries, they would generally have a greater risk of default should one of the issuers face financial hardship.

These trades are settled through NSCC - the National Securities Clearing Corporation. U.S. Government and agency bond trades settle in Federal Funds, which are good funds on the business day of the fund's transfer (the next business day for regular settlement of government securities).

For paper savings bonds

The 1099-INT will only come when someone cashes the bond or the bond matures. The interest will be reported under the name and Social Security Number of the person who cashes the bond or who owns it when it matures.

Agency bonds, also known as agency debt, is the debt issued by a government-sponsored enterprise (GSE) or a federal agency. The key difference between a GSE and a federal agency is that a GSE's obligations are not guaranteed by the government, whereas a federal agency's debt is backed up by a government guarantee.

Many bonds issued today are “callable,” which means they can be redeemed by the issuer before the listed maturity date. If that happens, the issuer would pay you the call price and any accrued interest, but they wouldn't make any future interest payments.