Commercial paper—a short-term borrowing by a corporation—is typically issued at a discount to its par value.

The difference between the discounted purchase price and par (known as “accreted interest”) represents the investor’s return.

Commercial paper is offered in minimum denominations of $100,000 with $1,000 increments, and maturities range from overnight to 270 days.

These securities are assigned credit ratings to denote their credit quality.

U.S. Government-sponsored enterprises, such as the Federal Home Loan Banks (FHLB), Federal Farm Credit Banks (FFCB), Federal Home Loan Mortgage Company (FHLMC or “Freddie Mac”), Federal National Mortgage Association (FNMA or “Fannie Mae”) and the Tennessee Valley Authority (TVA), issue these money market securities at a discount to par, with accreted interest paid at maturity.

Agency discount notes are available in a variety of maturities (from overnight to 365 days) and denominations (generally in $1,000, $5,000 or $10,000 minimums), depending on the issue.

These notes provide high credit quality (second to that of U.S. Treasury Securities) and a yield advantage over Treasuries. Some issuers (i.e., FHLB, FFCB and TVA) carry a state and local tax exemption on interest paid on the notes.