Which federal agency bonds are state tax exempt?
Tennessee Valley Authority (TVA), Federal Home Loan Banks, and Federal Farm Credit Banks agency bonds are exempt from local and state taxes.
Agency bonds are securities issued by U.S. government agencies or Government-Sponsored Entities (GSEs). Agency bonds are considered low-risk, although not as safe as U.S. Treasurys. Agency bonds can be callable and paid off by the borrower before they mature.
The key difference between a GSE and a federal agency is that a GSE's obligations are not guaranteed by the government, whereas a federal agency's debt is backed up by a government guarantee.
A 20% risk weighting places Fannie Mae MBS in an asset category generally considered to be of very high credit quality.
Taxability. The interest income on GNMAs generally is subject to federal and state taxes. GNMA securities may subject investors to capital gains taxes when sold or redeemed.
The interest income on agency bonds generally is subject to federal and state taxes. Interest on certain agency bonds, including securities issued by the FHLB and FFCB, is exempt from state taxes. Agency bonds, when bought at a discount, may subject investors to capital gains taxes when they are sold or redeemed.
Agency bonds are typically issued through broker-dealers. The bonds are offered in maturity terms ranging from less than a year to 30-year. Some agency bonds may be callable and subject to call risk. Agency bonds are less liquid than treasury bonds and usually pay a slightly higher interest rate as compensation.
Bonds are issued by federal, state, and local governments; agencies of the U.S. government; and corporations. There are three basic types of bonds: U.S. Treasury, municipal, and corporate.
The different offerings of the securities are Treasury Bills, Treasury Notes, Treasury Bonds, Treasury Inflation-Protected Securities (TIPS), Floating Rate Notes (FRNs), Series I Savings Bonds, and Series EE Savings Bonds.
Bonds issued by GSEs
Because GSEs are owned by shareholders and not part of the federal government, these bonds are not backed by the government's “full faith and credit” guarantee and are therefore subject to credit and default risk.
What is the difference between GSE and non GSE?
Unlike traditional lenders, GSEs do not lend money directly to consumers. Instead, they extend credit to member lending institutions or stimulate lending by purchasing loans on the secondary market and selling them to investors.
Government Sponsored Enterprises (GSEs)
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (FHLBs) are government-sponsored enterprises (GSEs) that help bring capital to the housing markets.
Treasuries. Treasury securities like T-bills and T-notes are very low-risk as they're issued and backed by the U.S. government. They provide a safe way to earn a return, albeit generally lower than aggressive investments.
Treasury bonds (T-bonds), notes (T-notes), and bills (T-bills) are government-issued fixed-income securities that are very low risk. T-bonds typically mature in 20 or 30 years and offer the highest coupons or interest, which are paid twice yearly.
They offer a fixed interest rate and are backed by the U.S. government, making them a low-risk investment. While they may not yield the highest returns compared to riskier investments, they can provide stability to your portfolio, particularly during times of market volatility.
FHLBank consolidated bonds (bonds) offer investors a wide variety of sizes, structures and maturities to meet numerous portfolio objectives. All bonds are rated by Moody's (Aaa) and S&P (AA+), and for domestic investors, are exempt from state and local income tax.
There is a federal law that exempts from state taxation “all stocks, bonds, Treasury notes and other obligations of the United States government.” And since Ginnie Maes are mortgage-backed securities issued by a corporation owned by the federal government--the Government National Mortgage Assn.
FHLBank investments are also very safe. By regulation, they are prohibited from purchasing non-investment grade securities and nearly all of their investments are triple-A rated. Each bank is registered with the SEC and is supervised and regulated by the Federal Housing Finance Agency (FHFA).
- Report interest each year and pay taxes on it annually.
- Defer reporting interest until you redeem the bonds or give up ownership of the bond and it's reissued or the bond is no longer earning interest because it's matured.
- SPDR® Portfolio Corporate Bond ETF.
- SPDR® Portfolio Interm Term Corp Bd ETF.
- iShares Broad USD Invm Grd Corp Bd ETF.
- Goldman Sachs Acss Invmt Grd Corp Bd ETF.
- iShares 5-10 Year invmt Grd Corp Bd ETF.
- iShares ESG USD Corporate Bond ETF.
- iShares iBoxx $ Invmt Grade Corp Bd ETF.
Are US Treasuries callable?
However, not all bonds are callable. Treasury bonds and Treasury notes are non-callable, although there are a few exceptions.
What Is an Agency Bond? An agency bond is a security issued by a government-sponsored enterprise or by a federal government department other than the U.S. Treasury. Some are not fully guaranteed in the same way that U.S. Treasury and municipal bonds are. An agency bond is also known as agency debt.
The fair values of U.S. agency bonds are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. agency bonds are included in the Level 2 fair value hierarchy.
Unless you are set on holding your bonds until maturity despite the upcoming availability of more lucrative options, a looming interest rate hike should be a clear sell signal.
Treasury bond risks
A 30-year Treasury bond yields about 4.25 percent (as of April 2024). If that yield is not higher than inflation, then your investment loses purchasing power.
