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Understanding investment types

U.S. Government Agency bonds

U.S. government agency bonds are debt obligations issued by government-sponsored enterprises (GSEs) or U.S. government agencies. GSEs are independent organizations sponsored by the federal government and established with a public purpose. Agency bonds usually are issued in $1,000 denominations.

GSEs include the Federal Home Loan Banks (FHLB) and the Federal Farm Credit Banks (FFCB), which are systems comprising regional banks. The Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Mortgage Corporation (FHLMC or Freddie Mac) are privately owned corporations created by the federal government to provide liquidity and increase available credit in mortgage markets.

Federal agencies like the Government National Mortgage Association (GNMA or Ginnie Mae) are backed by the full faith and credit of the U.S. government. GNMAs are commonly issued as mortgage pass-through securities.

Credit rating

GSE debt is not guaranteed by the U.S. government. GSE debt is solely the obligation of the issuer and carries greater credit risk than U.S. Treasury securities.


The interest income on agency bonds generally is subject to federal and state taxes.

Interest on certain agency bonds, including securities issued by the FHLB and FFCB, is exempt from state taxes. 

Agency bonds, when bought at a discount, may subject investors to capital gains taxes when they are sold or redeemed. Investors should consult a tax professional for additional information.


Vanguard Brokerage Services® does not make a market in GSE or agency bonds. If you want to sell your GSE or agency bonds prior to maturity, Vanguard Brokerage can provide access to a secondary over-the-counter market. The secondary market generally provides liquidity for GSE or agency bonds, but liquidity will vary depending on a bond’s features, lot size, and other market conditions. It may be difficult to sell GNMAs that have experienced significant principal pay-down.


On new issue agency bonds bought in the primary market, Vanguard Brokerage may receive a concession from the issuer. If a concession is not available, Vanguard Brokerage reserves the right to charge a commission. Commissions will be charged for transactions in the secondary market.


Agency bond prices can rise or fall depending on interest rates. Interest rate changes generally have a greater effect on long-term bond prices.

All agency bonds carry the credit risk that the issuer will default or will be unable to make timely payments of interest and principal. GSE debt is solely the obligation of the issuer and carries greater credit risk than U.S. Treasury securities.

Some agency bonds have call provisions that allow the issuer to redeem the bonds prior to the stated maturity date. Issuers typically call bonds during periods of declining interest rates. 

Certain events can impact a GSE or agency issuer’s financial situation and ability to make timely payments to bondholders, including economic, political, legal or regulatory changes and natural disasters. Event risk is unpredictable and can significantly impact bondholders.

Agency bonds sold prior to maturity may be subject to substantial gain or loss. The secondary market may also be limited.


Learn about Government National Mortgage Association (GNMA) bonds

All investing is subject to risk, including possible loss of principal.