Resource Center

Fixed Income: Agency Securities

What are Agency Securities?

The term “agency securities” is sometimes used by brokers, dealers and investment advisors to refer to securities issued or guaranteed by a variety of entities other than the U.S. Treasury. Agency securities are not the same as U.S. Treasury securities. An agency security represents a loan by the security purchaser (the investor) to the issuing entity and an investor should consider the different characteristics and different guarantees of agency securities. The term “agency securities” refers to securities issued by or guaranteed by:

For example, the housing sector GSEs are the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (cooperatively owned by their member institutions, they issue debt through their joint Office of Finance).

The Farm Credit System Banks are cooperatively owned, issue debt through the Farm Credit Bank Funding Corporation and are agriculture sector GSEs. The Student Loan Marketing Association (Sallie Mae) is a higher education sector GSE that currently is in the transition process to full privatization. The Federal Agricultural Mortgage Corporation (Farmer Mac) provides a secondary market for agricultural real estate and rural housing mortgage loans.

Are agency securities backed by a U.S. government guarantee?

Some are, but many are not. Ginnie Mae guarantees investors timely payment of principal and interest on participation certificates in pools of federally insured or guaranteed loans made by the Federal Housing Administration and several other agencies.

Ginnie Mae guaranteed securities are fully backed by the U.S. government. In contrast, the securities of government sponsored enterprises (or GSEs) are not obligations of, nor are they guaranteed by, the U.S. government and these GSE issuers are required by law to disclose this fact in their securities issuances.

In addition, although it is a government corporation, the securities of the Tennessee Valley Authority are not guaranteed by the U.S. government. For further information on the issuances of specific GSEs or government corporations, please refer to their websites or publications.

Last Updated: 12/1/2010 1:51 AM