Risk Considerations Risk Considerations   


Agency Securities

The Agency market is comprised of notes and bonds issued by Federal Agencies, also known as Government Sponsored Enterprises (GSEs). Agency issuers include:

  • Federal National Mortgage Association (Fannie Mae)
  • Federal Home Loan Mortgage Corporation (Freddie Mac)
  • Federal Home Loan Bank System (FHLB)
  • Federal Farm Credit Bureau (FFCB)
  • Tennessee Valley Authority (TVA)
  • Federal Agricultural Mortgage Credit Association (Farmer Mac)

Agency securities are considered to be of high credit quality but they are not guaranteed by the full faith and credit of the United States Government. Yields on Agency notes and bonds are usually somewhat higher than US Treasury obligations but lower than investment grade corporate securities of similar duration and structure. Agencies are sought after by investors seeking low credit risk while still desiring to receive a higher yield than that of a US Government instrument.

Supranational Securities

Supranational issuers, such as The World Bank (IBRD), are international organizations that provide global financing for projects, education, social programs, and infrastructure development.

While credit risk still exists, supranational securities can also be of high credit quality; World Bank, for example is rated AAA/Aaa. Supranational entities issue in numerous currencies and in global markets.

Callable Securities

The Agencies and Supranational issuers are in continuous need of callable securities to manage the risks of their business operations. Callable bonds typically provide higher yields than regular bullet securities and may provide the incremental yield that some investors seek while retaining the high credit quality of an Agency investment. Callable bonds, as their name implies, are redeemable by the issuer at a date prior to the stated maturity of the security. Investors are compensated for taking this call risk by being given a higher coupon. Click here for more on callable notes and other features of Agency and Supranational Securities.