What is an Agency Debt | Agency Debentures

Debt obligations of the agency – the English. Agency Debentures , a debt obligation issued by a federal agency or government sponsored enterprise (GSE) to raise funding. These types of debt obligations are not supported by collateral, but solely by the issuer’s creditworthiness. Officially, agency debt issued by the Federal Agency is supported and fully recognized by the US government. Agency debt issued by a government sponsored enterprise is only supported by its solvency.

However, the market sees agency debt issued by a government-sponsored venture as bearing an indirect guarantee from the US government. An indirect guarantee arises from the ability of these enterprises to attract direct financing from the US Treasury, which is necessary to fulfill their charters and missions.

Agency debt market is very large. One day in the late 1990s, the open debt of agencies, consisting primarily of bonds issued by Fannie Mae and Freddie Mac, almost exceeded the amount of debt issued by the US Treasury.

Some experts believe that government-sponsored enterprises have the advantage of financing over joint-stock or private corporations, and the amount of their debt obligations and the size of their investment portfolios pose too much risk for the entire American financial system. Others justify the benefits of financing government-sponsored enterprises in that they play a huge role in providing affordable mortgages to individuals with lower than average incomes.

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