Ginnie Mae, Fannie Mae and Freddie Mac

Ginnie Mae
- does NOT hold any bond
- does NOT originate MBS
- does guarantee MBS issued by banks with the right ingredients
- is backed by 'full faith of the government'

Fannie Mae and Freddie Mac
- does hold some bonds
- does originate MBS
- does guarantee MBS issued by banks with the right ingredients*
- (formally speaking) is NOT backed by 'full faith of the government

Note*:
1. Fannie Mae and Freddie Mac guarantee bonds, whether they are their own originations or not
2. "Right ingredients" here are different from those in Ginnie Mae guaranteed MBS

The volatility of corp bond yield

Q: How does the volatility of the yield of corporate bond compare to that of treasuries?

A: The question can be translated into "is the correlation between corporate yield spread and the underlying index yield (treasury yield) positive or negative?" Empirical study shows that they are negatively correlated. What is the economic story? When the underlying riskless treasury yield is high, the general economy is usually doing well (i.e. what is the objective of the Fed?) and so the corporates are in good shape to service their debts. Default is therefore less likely.

Since the correlation is negative, the answer to the original question is that the yield of corporate bond actually tends to be lower than that of treasury securities. This is a little anti-intuitive, as we expect the corporate bond to be riskier and hence has more volatile price.