Products & Their RisksQuestion 130 of 398
Compared with U.S. Treasury securities, GSE agency securities such as FNMA debentures generally offer:
a.A lower yield because they are federally insured
b.Exactly the same yield because both are government issues
c.A slightly higher yield to compensate for the absence of a direct full-faith-and-credit guarantee
d.A tax exemption at the federal level
Explanation
GSE securities are not directly guaranteed by the U.S. government, so investors demand a slightly higher yield than on comparable Treasuries to compensate for the marginally higher credit risk. Both are still considered very high quality, but the yield spread reflects the difference in backing.
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