Agency Notes - FAQs

1. What are Agency Notes?

Agency Notes are debt instruments by U.S. government sponsored enterprises raise capital for their operations.

Examples such enterprises include:

• Fannie Mae (FNMA)
• Federal Home Loan Mortgage Corporation (FHLMC, or “Freddie Mac”)
• Federal Home Loan Banks (FHLB)
• Federal Farm Credit Banks (FFCB)

2. Are Agencies’ credit quality as high as Treasuries?

Almost.

They are not government guaranteed, but the issuers maintain a direct line of credit with the U.S. Government.

3. Can Agency discount notes settle for cash?

Yes.

Due to their short-term nature there some maturities that settle same day.

4. How do Agency discount notes work?

Agency discount notes are similar to Treasury Bills in that they are sold at a discount, mature at face value (par) and pay no coupon interest.

The difference between the discounted purchase price and par value is known as accreted interest, and is paid to investors at maturity.

5. Are investors compensated for accepting a slightly higher credit risk?

Yes, in the form of a yield advantage over Treasuries.

Question 6 indicates the advantage that Agency discount notes provide over Treasury Bills, based on recent market conditions. Click here to go to Questions 6 - 10.