Bonds.com, Inc. through our trading platform, BondStation.com,
is pleased to offer access to new issue and secondary Agency/GSE bonds. Easily search for callable,
non-callable, zero-coupon and multiple-coupon bonds.
Product Overview:
Government Sponsored Enterprises, known as GSEs, are privately owned corporations created by Congress to
provide funding and help to reduce the cost of capital for certain borrowing sectors of the economy such
as homeowners, students and farmers. GSE securities are generally perceived to carry the implicit backing
of the U.S. Government, but they are not direct obligations of the U.S. Government. Such agencies have
been set up in order to allow certain groups of individuals to access low cost financing, especially
students and first-time home buyers. Some prominent issuers of GSE bonds are Student Loan Marketing
Association (Sallie Mae), Federal National Mortgage Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (Freddie Mac).
GSEs are also sometimes referred to as federal agencies or federally sponsored agencies. One should
note, however, that there are organizational differences among the GSEs although all are established
with a public purpose: Federal National Mortgage Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (Freddie Mac) are privately owned corporations, while the Federal Home Loan Banks
and the Federal Farm Credit Banks are systems comprising regional banks.
Issuance:
The GSEs utilize a variety of issuance formats for their securities. Most long-term debt is issued in
public monthly security sales through designated dealer groups using both syndicate and auction pricing
methodologies. Currently, the majority of GSE term debt is issued through various programmatic issuance
formats.
Features and Benefits:
- Credit Quality - While they are not backed by the “full faith and credit” of the U.S. Government, most Agency/GSEs possess high credit quality. The senior debt of the GSEs is rated AAA/Aaa, while the subordinated debt of Fannie Mae and Freddie Mac is currently rated AA-/Aa-
- Yields - Agencies/GSEs' are generally perceived as offering a higher level of low-risk than corporate bonds and many other investments; due to their close relationships with the federal government and exemptions from certain tax and securities laws. Agencies/GSEs typically provide investors with higher yields than US Treasury securities or CDs of similar maturities
- State/Local Exemptions - Agency bonds are usually exempt from state and local taxes, but not federal tax. Investors should always consult a tax professional regarding their individual tax situation
- Liquidity – Agencies/GSEs liquidity is surpassed only by that of Treasury obligations. Investors and dealers actively trade these securities in the secondary market, meaning that most Agencies/GSEs can be easily bought and sold.
Risks:
The wide variety of new GSE debt structures require a higher level of investor sophistication and
awareness. Different structures behave differently when interest rates, yield curve shapes, exchange
rates and/or other market indices change. Investors should fully understand the price sensitivity and
performance characteristics of the instrument they are considering, and make a complete analysis of both
potential risks and benefits. The key to success in this market is to be fully aware of all the
characteristics of the particular instrument and to understand how the security will react to changes
in relevant market rates and in combination with other portfolio holdings.
Agencies/GSEs are subject to: Call, Interest Rate, and Credit risk.
Taxes: For full information regarding the tax consequences of Agency/GSE securities, investors should consult their tax advisor
For more information please access our affiliate site BondClass.com, or call one of our Relationship Managers at 1-888-266-3708.
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