Agency bond – Financial Terms

Some government affiliated but privately owned corporations, including Fannie Mae and Freddie Mac, and certain federal government agencies, including Ginnie Mae, the Government National Mortgage Association (GNMA), raise money by issuing bonds and short-term discount notes for sale to individual and institutional investors.

The money raised by selling these bonds, also referred to as agency securities, is typically used to make reduced-cost loans available to specific groups, including home buyers, students, or farmers. Interest you earn on some-but not all-of these securities is exempt from state and local income taxes, but it is always federally taxable.

Bonds issued by the federal agencies are backed by the government’s full faith and credit, just as US Treasury securities are, but bonds issued by the sponsored corporations are generally not guaranteed.