Agency Bonds - What does "Implied Guarantee" Mean Exactly?

Agency bonds are a type of bond that is offered by government-sponsored agencies. Many of these bonds have what is referred to as an "implied guarantee" associated with them. Here are the basics of what an implied guarantee is and what it means to you as an investor.

Implied Guarantee

When an agency bond as an implied guarantee, it does not necessarily mean that there is any written guarantee regarding the performance of the bond. However, this means that you are getting an implied guarantee because the agency is backed by the federal government. Since most investors believe that these agencies are going to be safe because the government is not going to fail, this means that you have an implied guarantee. Your guarantee is associated with the strength of the federal government overall.

Impact

Even though there is not a specific guarantee as to the performance of this type of bond, it has the effect of reassuring investors. Investors feel very confident putting money into a company that is backed by the federal government. These investments are viewed as very safe investments. In fact, these bonds are one of the safest types of bonds that you can put your money into.

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