Historically, debt financing of the US Federal Government has occurred at two levels. Direct spending authorized by Congress was financed by the US Treasury through the issuance of Treasury securities. Entities formed by Congress might also issue debt. These entities fall into two categories:
Debt obligations of these entities are collectively called agency securities or simply agencies. Having federal agencies competing with the US Treasury for investors' funds drove up the government's cost of financing. It also imposed incremental costs due to the redundancy of each agency maintaining a separate debt issuance program. In 1973, Congress formed the Federal Financing Bank. Under the general supervision of the Secretary of the Treasury, it consolidated the debt issuances of federal agencies. Since then, the Tennessee Valley Authority has been the only federal agency to issue significant amounts of its own securities. As private corporations, GSEs still issue their own debt. The vast majority of issuances are by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Agency securities are less standardized than are Treasuries. There are discount notes, which are comparable with Treasury bills, as well as fixed and floating rate medium term notes. Agencies directly issue some zero-coupon securities. Like corporate bonds, many longer-term issues are callable.
Agencies are exempt
securities, and interest on many are exempt from state and local taxes. Securities are
publicly offered in various ways through investment banks or direct sales
to investors. In the late 1990s, Fannie Mae started auctioning
standardized bills and notes to the public in much the same way that the
Treasury auctions its securities. The goal was to increase
liquidity and to establish agency
yields as somewhat of a benchmark
comparable to Treasury yields or
swap rates. Freddie Mac
and the Federal
As with most debt instruments, the secondary market for agencies is entirely over the counter. There are several trillion dollars of agencies outstanding. The liquidity of issues varies. Agencies are generally not as liquid as Treasuries, but most are more liquid than corporate bonds. Agencies pose credit risk, but this is considered minimal. All GSEs have stable businesses, and several have authority to borrow from the US Treasury. While there may be no explicit government guarantees, there is a widespread belief that the Federal Government will intervene to prevent any GSE from defaulting on its debt.
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Federal
agencies are a part of the Federal Government and include entities like
the Federal Housing Administration, Export-Import Bank and Small Business
Administration.
Banks launched similar benchmark securities
programs. 
