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An agency bond is a type of security that is issued by a properly authorized and recognized financial entity by the government, with similar functions to those of a United States Treasury Bond. In effect, agency bonds are another example of a way of making a relatively safe investment, with an excellent opportunity of reaping a small increase in profits as the bond matures. Here are some examples of how an agency bond works, as well as some of the government-sponsored organizations that are authorized to issue the bonds.
While an agency bond is issued by a financial agency that is not under the control of the government, each sponsored agency is required to operate under specific regulations that are issued by the United States government. Among the better known agencies that are authorized to issue an agency bond are the Federal National Mortgage Association, known popularly as Fannie Mae. Other popular agencies are the Student Loan Marketing Association, known as Sallie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac.
Along with these three top agencies, the Federal Farm Credit Bank, the Tennessee Valley Authority, and the Government National Mortgage Association (Sallie Mae) also raise money with the issue of short-term discount bonds that are available to both individuals and investors associated with various types of institutions.
It is important to note that while the government backs the issue of all these incarnations of the agency bond, they do not guarantee them, as they would with a US Treasury bond. Any bond issued by an outside agency is considered to be protected under the provisions offered by these private institutions. As such, any issues with the bonds must be addressed with the issuing agency, not the federal government.
The purpose of the agency bond is to allow individuals and entities within the target group to take advantage of interest bearing bonds that will help in the pursuit of a specific purpose. For example, a Sallie Mae is geared toward assisting students in pursuing and paying for an education. Fannie Mae bonds, as well as Freddie Mac bonds, focus more on providing assistance and support for purchasing homes and property. Bonds issued by the Farm Credit Bank focus on assisting persons involved with agriculture in some manner. To this end, the agency bond is normally not liable for any type of local or state taxes, although all forms of the agency bond are subject to federal taxes.
The duration of the bonds before maturity will vary from one instance to another. Persons who are interested in and qualify for some sort of agency bond can sit down with a financial adviser and determine what type of agency bond, the amount of the bond, and the duration until maturity is right for the particular situation.
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