Debt issued by a government-sponsored enterprise such as Fannie Mae, Freddie Mac or the Federal Home Loan Banks; near-Treasury credit with a small yield pickup.
Agencies are not formally guaranteed by the government, but they are widely assumed to carry implicit support, which was made concrete when the housing GSEs entered conservatorship in 2008. The spread over Treasuries is therefore mostly liquidity, not default risk.
Example: a 5-year agency debenture yields 4.32% against a 4.20% Treasury, a 12 basis point pickup for near-identical credit. On $10 million that is $12,000 a year of extra income.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Contango and backwardation. A futures curve shows what buyers will pay for delivery in one month, two months and so on. When later contracts cost more than the spot price the curve is in contango; when they cost less it is in backwardation.
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