Agency Bond
Debt securities issued by U.S. government-sponsored enterprises or federal agencies, typically offering slightly higher yields than Treasuries.
What is Agency Bond?
Agency bonds are debt securities issued by U.S. government-sponsored enterprises (GSEs) such as Fannie Mae (FNMA), Freddie Mac (FHLMC), and the Federal Home Loan Banks, or by federally chartered agencies such as Ginnie Mae (GNMA) and the Federal Farm Credit Banks. GSE agency bonds carry an implicit (but not explicit) government guarantee, while Ginnie Mae securities carry a full faith and credit backing of the U.S. government. Agency bonds typically offer yields slightly above comparable-maturity Treasuries to compensate for the marginally higher credit risk and lower liquidity of GSE debt. They are a core holding in many fixed-income portfolios, particularly for mortgage-backed securities issued through GSE programs.
Example
In 2024, a 5-year Federal Home Loan Bank bond yields approximately 4.85%, compared to 4.55% for a 5-year U.S. Treasury note—a spread of 30 basis points. The additional yield reflects the implicit rather than explicit government guarantee of FHLB debt, though the market widely expects the government would support GSE obligations in a crisis, as demonstrated during the 2008 conservatorship of Fannie Mae and Freddie Mac.