Agency Bond

  

Categories: Bonds, Muni Bonds

When you're a big dog like the federal government and want to issue bonds or T-Bills, you guarantee your paper with the right of the government to tax its people.

But what happens when you're a medium-sized dog...like a government agency? If you're Fannie Mae or another government agency, and the government won't guarantee your bonds, you can issue agency bonds.

Related or Semi-related Video

Finance: What is an Agency Bond?2 Views

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Finance allah shmoop What is an agency bond Okay the

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federal government sells a lot of paper all the time

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That is it exchanges a promise to pay investors of

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thousand bucks in a year in return for nine hundred

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seventy two dollars today those federally backed pieces of paper

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are back or guaranteed by the full faith and credit

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of the us government's ability to tax it's poor hard

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working and taxpaying citizens But inside of our massive government

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exists all kinds of agencies particularly home and student and

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you know other loan agencies who dole out money to

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us citizens all the time Well fannie mae in her

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brethren and while sister in is that a thing system

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anyway her family of agencies while they issue paper as

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well and they issue it separately from the federal government

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And for the most part they're agency bonds look a

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whole lot like federal bonds with one key exception They

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are not backed by the federal government's full faith and

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credit directly Rather they're just backed by the credit worthiness

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of the agency itself backing them that is fannie mae

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wants to raise cash for whatever more homes more loans

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Blah blah blah It sells paper to the public and

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institutions and whomever and promises to pay well basically with

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a handshake That shake is based on its ability to

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raise more money in the future or wine loudly enough

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so that the federal government steps in and bails them

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out If some one in a million crisis happens and

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hello two thousand eight financial crisis we're looking at you

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All right Well the basic idea here is that agency

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bonds are backed by the agency itself not by the

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full whammy of the full federal government so they generally

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yield a skosh more interest to account for that scootch

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more risk that investors take in buying them No Should

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some other one in a million crisis ever happen again

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So that's an agency bond not to be confused with

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a bond agency which you know is the british secret 00:01:58.357 --> [endTime] service

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