This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Looking for Yield? Try Agency Bonds

Stocks in this article: SIGVX FNM FRE

ATLANTA ( TheStreet) -- Chad Stephens, manager of the RidgeWorth U.S. Government Securities Ultra-Short Bond Fund (SIGVX), says bonds issued by government-backed agencies are a safe place for investors seeking extra yield.

The $1.3 billion fund, which garners five stars from Morningstar (MORN) has returned 3.7% during the past year, outperforming the 2.3% gain of the Barclays Capital Aggregate Bond Index. More than 90% of the fund is invested in bonds tied to mortgages, according to Morningstar.

Welcome to's Fund Manager Five Spot, where America's top mutual fund managers share their investment views in five fast and furious questions.

Why are agency bonds good to hold now?

Stephens: They offer attractive yields versus Treasuries, but we also get the agency guarantee. We don't take any credit risk, so it's not a matter of if we are going to get paid back. It's just a question of the timing of the security's cash flows.

There's a lot of worry over the entities themselves. What's going to happen to Fannie Mae (FNM) and Freddie Mac (FRE)?

Stephens: We will definitely see a restructuring of the entities, whether it goes to a Ginnie Mae-type structure, completely under the government, or if its privatized again under different rules. I'm not sure. And there is also a proposal to do it as a co-op-type thing. I think any of those could work, but they all have their downsides.

Who are some of the big buyers of agency bonds right now?

Stephens:The biggest buyers at the short end of the mortgage market are the commercial banks. They are flush with cash right now. They are not lending. So they have to put that capital to work. The mortgage market is a good place for them to earn yield and have liquidity so they can sell these securities when loan demand picks up.

Where do you foresee rates at the end of the year?

Stephens:We don't expect the Federal Reserve to raise interest rates until the third or fourth quarter. I do think we will see a Fed hike by the end of the year.

What happens when the Fed stops buying mortgage backed securities?

Stephens: Everyone has been very concerned that spreads would widen and mortgage rates would go up when the Fed ended their program. However, in February, Fannie Mae and Freddie Mac announced that they were going to start buying all the 120-day-plus delinquencies in their pools. This equates to Fannie and Freddie taking out $190 billion of securities from the market while simultaneously putting $190 billion in cash into investors' hands. This, in effect, extends the Fed's buying program for several months and should be very supportive to spreads and mortgage rates.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs