Government-sponsored enterprise bonds
Government-sponsored enterprises are not government departments but are subject to government oversight and may have some government support. Because of this, they are not backed by the full faith and credit of the U.S. government and may carry a bit more risk. GSE bonds come from places like:
- Federal National Mortgage Association (Fannie Mae).
- Federal Home Loan Mortgage (Freddie Mac).
- Federal Farm Credit Banks Funding Corporation.
- Federal Home Loan Bank.
- Tennessee Valley Authority (TVA).
Advantages of agency bonds
Agency bonds are generally very solid investments because of their proximity to the United States government. Even GSE bonds are much safer investments than many other vehicles, although they are not officially backed by the U.S. government in the same way as other agency bonds.
Agency bonds may carry slightly higher interest rates due to the slightly increased risks involved, but they also generally offer another benefit -- for many agency bonds (check yours before investing), the interest is exempt from local and state taxes, which can save you a lot of money depending on how much you're investing and where you live.
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