FEDERAL AGENCY SECURITIES
Federal Agencies* are authorized by Congress to support specific needs in the nation's economy. These agencies finance their funding requirements through the public sale of discount notes and debentures. These securities are obligations of the issuing agency and are not guaranteed by the U.S. Treasury.
Terms and Structures
- Maturity
Agency obligations typically have maturities from one month to 15 years.
- Issued
Securities are brought to market by a nationwide selling group of banks and dealers. The Agency sets the rate on the securities according to market conditions. Orders are usually placed prior to that announcement. Shortly after the price is set, the issues are traded in the secondary market, and investors must pay the current market price, which varies with market conditions and current interest rates.
- Rate Structure
Yields vary according to market conditions, maturities, tax status, and size of issue.
- Interest
Paid at maturity for debentures of less than one year and semi-annually for longer-term issues. On discount notes, the interest is the difference between the purchase price and par value.
- Denominations
Vary based on the Agency and maturity.
- Form
Transactions are by book entry.
- Quoted
Agency debentures are quoted on a dollar price basis, with fractional dollars represented in terms of 32nds, e.g. a price quotation of 100.16 means 100 16/32 or $100.50 per $100 of maturity value. Agency discount notes are quoted on a discounted yield basis.
- Security
Federal Agency obligations are not backed by the federal government. However, because of close government supervision, it is considered by most analysts to be unlikely that the U.S. Government would permit agency obligations to go into default.
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