About five years ago, the U.S. Federal Government placed Fannie Mae and Freddie Mac (GSEs) into conservatorship and provided $187 billion in public support to the two agencies. Last week, Fannie and Freddie repaid the last remaining bailout funds and, going forward, will contribute to the Federal Government general fund. Many of our clients own bonds backed by these mortgage giants. So what does repayment of bailout funds mean for our clients and what comes next? Before the bailout, Fannie and Freddie had the implicit guarantee of the U.S. Treasury. After the bailout, the institutions had the explicit guarantee of the U.S. Treasury, which means their debt is similar in credit risk to Treasury bonds. Now that the bailout funds are repaid, discussion and legislation are turning to a potential wind-down of these public agencies. If the GSEs are dissolved through an act of Congress, their debt will be extinguished through the creation of a trust and the various forms of debt would be eventually called or left to mature. There would be little to no risk to bondholders of not getting paid back. But what is the likelihood that Congress will act to dissolve the GSEs and what will be the impact to the U.S. agency market if it does? In a recent research piece, Deutsche Bank estimates the likelihood of GSE reform passing to be quite low, at 10-15%. If Congress does act, the Federal Home Loan Banks would become the dominate issuer of agency debt and market liquidity would most likely be unaffected for FHLB bonds. The Federal Home Loan Banks already surpassed the combined debt issuance of the other GSEs in 2012. Going forward, agency debt will continue to be an important risk management tool and liquidity provider in our client portfolios.