|Course 108: Introduction to Government Bonds|
|Agency Bonds and Mortgage-Backed Securities|
Agency Bonds and Mortgage-Backed Securities
Agencies of the federal government raise money to help certain areas of the economy. Various government-sponsored organizations also do. Together, their securities are called agency bonds. These groups sell their own securities as one way to raise money. The U.S. Treasury does not issue any agency bonds.
Agency securities are considered very safe from default. Should they ever default, the government would probably use its creditworthiness to guarantee investors' payments of interest and principal. This is generous protection, since the U.S. government does not fully guarantee most agency securities.
Most agency bonds are in the form of mortgage-backed securities. These securities represent investments in pools of mortgages.
Agency bonds provide yields that are higher than those of Treasury securities. This is because they lack explicit guarantees of safety. Their maturities range from one year to fifty years. Denominations vary from $1,000 to $50,000.
Some well-known agencies that issue securities include the following:
The last three on the list--Ginnie Mae, Fannie Mae, and Freddie Mac--issue mortgage-backed securities. They issue the vast majority of them.
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