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Finance: What is an Agency Bond? 2 Views
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Description:
What is an Agency Bond? Agencies bonds are issued by government agencies, not the treasury. The typical government bonds (T-bills, T-notes, and such) are issued and backed by the treasury or a municipality; these are not. They are still backed by the government though, issued specifically by the government agencies: Federal Housing Administration, Small Business Administration, and Government National Mortgage Association.
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Transcript
- 00:00
Finance allah shmoop What is an agency bond Okay the
- 00:06
federal government sells a lot of paper all the time
- 00:09
That is it exchanges a promise to pay investors of
- 00:13
thousand bucks in a year in return for nine hundred
- 00:16
seventy two dollars today those federally backed pieces of paper
Full Transcript
- 00:20
are back or guaranteed by the full faith and credit
- 00:23
of the us government's ability to tax it's poor hard
- 00:27
working and taxpaying citizens But inside of our massive government
- 00:31
exists all kinds of agencies particularly home and student and
- 00:35
you know other loan agencies who dole out money to
- 00:38
us citizens all the time Well fannie mae in her
- 00:42
brethren and while sister in is that a thing system
- 00:45
anyway her family of agencies while they issue paper as
- 00:48
well and they issue it separately from the federal government
- 00:52
And for the most part they're agency bonds look a
- 00:54
whole lot like federal bonds with one key exception They
- 00:57
are not backed by the federal government's full faith and
- 01:01
credit directly Rather they're just backed by the credit worthiness
- 01:04
of the agency itself backing them that is fannie mae
- 01:08
wants to raise cash for whatever more homes more loans
- 01:12
Blah blah blah It sells paper to the public and
- 01:14
institutions and whomever and promises to pay well basically with
- 01:18
a handshake That shake is based on its ability to
- 01:21
raise more money in the future or wine loudly enough
- 01:24
so that the federal government steps in and bails them
- 01:26
out If some one in a million crisis happens and
- 01:29
hello two thousand eight financial crisis we're looking at you
- 01:33
All right Well the basic idea here is that agency
- 01:35
bonds are backed by the agency itself not by the
- 01:38
full whammy of the full federal government so they generally
- 01:41
yield a skosh more interest to account for that scootch
- 01:45
more risk that investors take in buying them No Should
- 01:48
some other one in a million crisis ever happen again
- 01:52
So that's an agency bond not to be confused with
- 01:55
a bond agency which you know is the british secret 00:01:58.357 --> [endTime] service
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