What are agency bonds?
Agency bonds are issued by either a government-sponsored enterprise (GSE) or a government-owned corporation, and are debt obligations solely of the issuing agency. GSEs include Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal National Mortgage Association (FNMA), and Federal Home Loan Mortgage Corporation (FHLMC). Tennessee Valley Authority (TVA) is a government-owned corporation.
Bear in mind that while agency bonds are considered to have high credit quality, the federal government is under no legal obligation to save a GSE from default. There are two categories of agency bonds: bonds that are the debt of the agencies themselves, and mortgage-backed securities (MBS) that are issued by agencies.
What does Schwab offer?
- More than 1,600 agency bonds offered1
- New issues available monthly
- Specialized help, regardless of account size
- Competitive and straightforward online pricing
Why would Schwab recommend agency bonds?
Agency bonds offer investors the opportunity to preserve principal; in addition, they provide relatively high liquidity, some tax advantages, and the potential to earn a higher yield than Treasuries offer.
What does Schwab charge to trade agency bonds?
Schwab provides clear, competitive, and straightforward pricing.
Secondary market agency bonds
Markup of $1 per bond ($10 minimum, $250 maximum per trade)
Online price + $25 per trade*
*Schwab uses the same pricing schedule for sell orders, which must be placed through a broker and are subject to a $25 broker-assisted fee.
Take a closer look at the benefits.
High credit quality
Although agency bonds are not guaranteed by the full faith and credit of the U.S. government, they do involve some level of federal sponsorship and generally have high credit quality—although ratings are always subject to change.
Agency bonds enjoy an active secondary market, so there is usually opportunity to sell before the bonds mature. If you sell agency bonds before maturity, you may receive more or less than you originally paid.
Interest payments from bonds issued by the FHLB, FFCB, and TVA are generally exempt from state and local taxes and are only taxable at the federal level. You should consult your tax advisor about your particular situation.
Review the risks.
Agency bonds are subject to the following types of risk: interest rate, credit, call, liquidity, reinvestment, inflation (or purchasing power), market and event, as well as other risks commonly associated with fixed income securities.
It’s important to remember that the issuing agency—not the U.S. government—backs an agency bond. Even so, these bonds still receive very high credit ratings, since they’re viewed by some as moral obligations of the federal government.
Find agency bonds.
Whether you invest in new issues or the secondary market, Schwab has a wide range of choices.
Schwab BondSource® lets you research and order new-issue agency bonds online.
Sample New Issues
Take advantage of resources to help you make decisions.
Talk to a specialist
Get assistance from over 100 Schwab Fixed Income Specialists who draw on an average of over 21 years of experience.2
Do the research
Access commentary that provides you with greater insight.
Attend a workshop
Learn more through educational workshops at your local Schwab branch.
We're here to help
Clients of independent investment advisors: You may also contact your advisor or call Schwab Alliance at 800-515-2157.
1. As of December 2015.
2. As of January 2016.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.
Schwab reserves the right to act as principal on any bond transaction. In secondary market principal transactions, the price will be subject to our standard markup for purchases and a markdown for sales, and may also include a profit to Schwab in the form of a bid-ask spread.
When trading as principal, Schwab may also be holding the security in its own account prior to selling it to you and, therefore, may make (or lose) money depending on whether the price of the security has risen or fallen while Schwab has held it.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.