US TREASURY AND GOVERNMENT AGENCY SECURITIES BASIC INFORMATION AND TUTORIALS

WHAT ARE US TREASURY AND GOVERNMENT AGENCY SECURITIES - FINANCIAL MANAGEMENT

U.S. Treasury Securities
All government securities issued by the U.S. Treasury are fixedincome instruments. They may be bills, notes, or bonds depending on their times to maturity.

Specifically, bills mature in one year or less, notes in over one to 10 years, and bonds in more than 10 years from time of issue. U.S. government obligations are essentially free of credit risk because there is little chance of default and they are highly liquid.

U.S. Government Agency Securities
Agency securities are sold by various agencies of the government to support specific programs, but they are not direct obligations of the Treasury.

Examples of agencies that issue these bonds include the Federal National Mortgage Association (FNMA or Fannie Mae), which sells bonds and uses the proceeds to purchase mortgages from insurance companies or savings and loans; and the Federal Home Loan Bank (FHLB), which sells bonds and loans the money to its 12 banks, which in turn provide credit to savings and loans and other mortgage-granting institutions.

Other agencies are the Government National Mortgage Association (GNMA or Ginnie Mae), Banks for Cooperatives, Federal Land Banks (FLBs), and the Federal Housing Administration (FHA).

Although the securities issued by federal agencies are not direct obligations of the government, they are virtually default-free because it is inconceivable that the government would allow them to default.

Also, they are fairly liquid. Because they are not officially guaranteed by the Treasury, they are not considered riskless. Also, because they are not as liquid as Treasury bonds, they typically provide slightly higher returns than Treasury issues.