Agency bond.
In plain English
An agency bond is issued by a government-sponsored enterprise, like Fannie Mae or Freddie Mac, or a federal agency. These bonds usually pay a little more interest than U.S. Treasuries because most carry an implied, not an explicit, government guarantee, so they are seen as very safe but a notch below Treasuries. Some agency debt is fully backed by the government, and some interest may be exempt from state taxes. They are used by conservative investors who want a small yield bump over Treasuries while keeping credit risk low, though liquidity and call features vary.
01Why it matters
Agency bonds offer a bit more yield than Treasuries with still-high safety, so understanding the implied-versus-explicit guarantee helps you judge exactly how safe they are.
02The math, step by step
An agency bond yields 4.4 percent while a comparable Treasury yields 4.2 percent. You earn 0.2 percent more for taking on the small extra risk that the agency's guarantee is implied rather than fully explicit.
03What this is NOT
An agency bond is NOT always a direct Treasury obligation. Many carry only an implied government backing, so they yield a bit more than Treasuries to compensate for that small extra risk.
04Receipts
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