the Washington Metropolitan Area Transit Authority. The only federal agency that is an active issuer of short-term debt obligations is the TVA. With the exception of securities of the Tennessee Valley Authority and the Private Export Funding Corporation, the securities are backed by the full faith and credit of the United States government. Interest income on securities issued by federally related institutions is exempt from state and local income taxes. Government sponsored enterprises (GSEs) are privately owned, publicly chartered entities. They were created by Congress to reduce the cost of capital for certain borrowing sectors of the economy deemed to be important enough to warrant assistance. The entities in these privi- leged sectors include farmers, homeowners, and students. GSEs issue securities directly in the marketplace. Today there are six GSEs that cur- rently issue debentures: Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Agricultural Mortgage 45     Corporation, Federal Farm Credit System, Federal Home Loan Bank System, and Student Loan Marketing Association. The interest earned on obligations of the Federal Home Loan Bank System, the Federal Farm Credit System, and the Student Loan Marketing Association are exempt from state and local income taxes. Although there are differences between federal agency and GSEs, it is common to refer to the securities issued by these entities as U.S. agency securities or, simply, agency securities. In this chapter we will dis- cuss the short-term debt obligations issued by the six GSEs and the TVA. Exhibit 4.1 presents a graph of the short-term debt obligations of six of the entities discussed in this chapter for the time period 1990-2000. (The Federal Agricultural Mortgage Corporation is not included.) Note that all of the securities issued by these entities expose an investor to credit risk. Consequently, agency securities offer a higher yield than comparable maturity Treasury securities. Nevertheless, agency securities are considered to be safer than all other fixed-income investments except U.S. Treasuries because of the strong fundamentals of their underlying businesses and because of the agencies government affiliation. Several of the agencies have authority to borrow directly from the U.S. Treasury. Additionally, there is a perception among inves- tors that the government implicitly backs the agency issues and would be reluctant to let an agency default on its obligations. Agency issuers are also attractive to some investors because their interest income is exempt from state and local taxation for many of the issuers (it is not exempt for Fannie Mae, Freddie Mac or Farmer Mac issues.)   EXHIBIT 4.1 Short-Term Agency Debt Issuance*