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 are:

The U.S. Postal Service, which raises funds to help its mail-delivery operations The Federal Land Banks, which raise funds for agricultural projects The Government National Mortgage Association (Ginnie Mae), which finances housing projects The Federal National Mortgage Association (Fannie Mae), which finances mortgages for the Federal Housing Administration and the Veterans Administration The Federal Home Loan Mortgage Corporation (Freddie Mac), which finances federally chartered thrift institutions

The last three on the list—Ginnie Mae, Fannie Mae and Freddie Mac—issue mortgage-backed securities. They issue the vast majority of them.

Beginning on the next screen, you will read about a different class of government bonds.