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CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers

A government agency is created by a national government to fund housing, and its bonds are not explicitly guaranteed by the government. Compared with the sovereign's own bonds of the same maturity, the agency's bonds are most likely to:

The agency's bonds most likely trade at a higher yield than the sovereign's. With no explicit government guarantee, investors face added credit risk and typically lower liquidity, and they require extra compensation for both.

  1. Atrade at a lower yield because agencies cannot default
  2. Btrade at a higher yield to compensate for added credit riskCorrect
  3. Ctrade at the same yield because ownership is the same

Explanation

Without an explicit guarantee, investors bear some credit risk and usually less liquidity than sovereign bonds, so they demand a higher yield. Agencies can default, and government ownership alone does not equalize yields.

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