Risk Considerations Risk Considerations   

Facts

Investor Base

Buyers of SSA debt securities include domestic and international banks, pension funds, mutual funds, hedge funds, insurance companies, foundations, other corporations, state and local governments, foreign central banks, institutional investors, and individual investors. 

Credit Quality

Debt securities issued by SSA issuers are typically considered to be of high credit quality. Relationships of the agency to their home government need to be understood to understand credit quality. For example, some U.S. agencies have explicit, though limited, lines of credit from the U.S. Treasury.  Other agencies, including those in the U.S., may benefit from a perceived tie to their home government as institutions established under legislation or other government action. A perceived tie is not an explicit guarantee as to the principal or the interest of Agency debt. The same is true for Supranational issuers. While Supranational issuers may have very close ties to sponsoring governments, including the United States Government, they are not explicitly guaranteed by the U.S. Government or any other.  

No Government Guarantees

Debt securities issued by Agencies are solely the obligation of the issuer and, unless explicitly stated, do not carry any guarantee by the sponsoring government. There are certain government agencies (e.g., Ginnie Mae) whose securities have the full faith and credit guarantee of the U.S. government. Generally, though, most Agency and Supranational issuers do not.

Yields on Securities

Agency and Supranational debt securities denominated in U.S. dollars have yields which typically are somewhat higher than U.S. Treasury Notes but normally lower than investment-grade corporate bonds. The yield can be higher or lower within the asset class depending on the volatility of the bond market, call features, note structure, maturity date, and the general supply and demand for a particular security. As with most fixed income investments, investors assume certain risks such as interest rate risk.

Wide Range of Structures

With many maturities and structures available, these securities offer investors a unique combination of high credit quality, pricing transparency and cash flows that can be customized to closely match an investor's objectives. Agency and Supranational securities in particular are issued in a wide range of fixed or floating interest rate structures.

Interest Paid

Subject to the creditworthiness of the issuer, interest is generally paid semiannually but depending on the terms of specific terms of the particular note or bond could be monthly, quarterly, annually or at maturity.

U.S. Tax Status

Interest income is subject to federal income taxes, with exemption from state and local taxes varying by agency and state. Please see a tax advisor for details.

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