DEFINITION of 'Agency Security'

Low-risk debt obligations that are issued by U.S. government-sponsored entities (GSEs) and other federally related bodies. Agency securities are issued by GSEs, including the Federal National Mortgage Association (FNMA), Federal Home Loan Bank and the Student Loan Marketing Association (SLMA). These entities were created to reduce the costs associated with borrowing for certain areas of the economy, including homeowners, students and farmers.

BREAKING DOWN 'Agency Security'

Agency securities are exempt from SEC registration. The GSEs issue discount notes and bonds that pay interest and have a low risk of default. Unlike U.S. Treasury Bills, agency securities are not backed by the full faith and credit of the United States Government (with the exception of the Farm Credit Financial Assistance Corporation). Agency securities are exempt from local and state taxes.

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