Certain federal government agencies, including Ginnie Mae — the Government National Mortgage Association — and Tennessee Valley Authority, issue bonds to raise funds either to make loan money available to consumers or to pay for new projects.
The best known of these bonds, Ginnie Mae, are
self-amortizing
pass-through mortgage-back securities. That means that, as homeowners repay the underlying mortgage loans, their payments are passed through to you. You wil receive some of your principal back with each interest payment.
Public perception is that these issues are less risky than corporate bonds because they are linked to the government, even though most are not federally insured or backed by any taxing powers. Minimum purchases are typically in the $25,000 range, which may further limit their appeal for individual investors.
Interest on most government agency bonds is federally taxable, and is paid at rates higher than Treasurys but lower than corporate bonds. Interest on certain agency bonds is tax-exempt, as it is on municipal bonds.
Alexandra Lebenthal, President and Chief