What is agency security?
Agency securities are debt obligations that are issued by federal and US government-related bodies. These particular securities are considered low risk as they receive credit protection based on explicit and implicit guarantees from the US government.
Where have you heard about agency securities?
If you’ve been to university or own a home in the USA, it’s likely you’ve used or encountered an agency security. The Student Loan Marketing Association, the Federal Home Loan Bank and the Federal National Mortgage Association are all agency securities.
What you need to know about agency securities.
Agency securities exist to lower the costs for specific parts of the economy, including farmers, homeowners and students. Government Sponsored Enterprises (GSEs) issue these securities and, because of assumed federal backing, these securities hold the historically highest possible credit rating. They are exempt from local and state taxes, but unlike US Treasury Bills, the government of the USA does not back them unconditionally.
Find out more about agency securities.
To better understand agency securities, it’s helpful to understand loans and Government Sponsored Enterprises.