Agency and GSE bonds are one way to create a more diversified portfolio without assuming excessive credit or inflation risk. The varying objectives of the individual government-sponsored entities, and their continuing demand for capital, usually enable customers to find a specific product to match their individual needs.
Bonds issued by GSEs
These include bonds such as the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Banks and the Federal Farm Credit Banks. Because GSEs are owned by shareholders and not part of the federal government, these bonds are not backed by the government’s “full faith and credit” guarantee and are therefore subject to credit and default risk.
Bonds issued or guaranteed by U.S. federal government agencies
Federal agencies, such as the Government National Mortgage Association (Ginnie Mae), are part of the federal government; as such, they are backed by the “full faith and credit” of the U.S. government. Ginnie Mae, however, does not issue bonds directly; it insures or guarantees mortgage-backed securities originated by other lenders. Not all agencies have government backing; one example is the Tennessee Valley Authority (TVA). TVA bonds are not backed by the U.S. government. Instead, they’re backed by the revenues generated by the agencies’ projects.
New issue agency and GSE bonds
New issue bonds are typically sold through broker-dealers, who purchase them in large blocks, then make the securities available to other institutions and to individuals. Although most may have a minimum order quantity of one bond, others have minimum purchase sizes of 5 or 10 bonds, with minimum investment amounts of $5,000 or $10,000, respectively. Please check the Bond Details page of the issue you are considering when placing orders.
