Who issues agency debentures?
Technically speaking, any government agency or GSE can offer agency debentures. Common issuers include the Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac). Understanding whether your agency debenture was issued by a government agency or a GSE is important because they have a few differences, including:
- Tax exemption. Agency debentures offered by government agencies are generally tax-exempt, although they may not be exempt from all taxes. For example, agency debentures issued by the Tennessee Valley Authority are only exempt from state and local taxes. GSE-issued debentures are taxed in the same way as other bonds.
- Government guarantee. If you buy an agency debenture issued by a government agency, the debenture and the associated interest payments are guaranteed by the government and will always deliver as long as the government doesn't fail. However, agency debentures from GSEs are not guaranteed; it's only implied that you will be made whole by the government if they fail.
How risky are agency debentures?
Because of government guarantees on government-issued agency debentures, you can be absolutely assured that your debenture will pay like it says it will and behave as expected. On the other hand, GSE-issued agency debentures lack that guarantee and carry more risk. Although it is likely the government will intercede if the GSE fails to uphold its promises, there is no guarantee.