What is an agency bond?

An agency bond, also called an agency security or agencies in jargon, is a bond issued by institutions in the United States that were originally established by the US government to promote certain social goals, such as stimulating homeownership or providing student financing.

Well-known examples of such institutions are the Federal National Mortgage Association (FNMA or Fannie Mae), the Government National Mortgage Association (GNMA or Ginnie Mae), the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), and the Federal Home Loan Banks.

Although these government agencies operate independently, they are viewed by the market as institutions for which the US government implicitly offers some guarantee. As a result, agency bonds have a lower credit rating ('rating') than US government bonds, such as Treasury-bonds.