Agency bonds always trade at a spread to US Treasury, meaning you have to give more yield for people to hold agency bonds. Simply put it's because of risk-reward, more risk you take, more yield you expect. US Treasury is still the closest to risk-free.
So, even though now US treasury is downgraded, there are agency bonds that are higher-rated, agencies STILL trade at a spread to US Treasury. Rating agencies could be a bunch of morans....but traders and investors are not, the market will tell you what it's worth...:))
Not to even mention debts issued by such troubled entities like Fannie and Freddie...what do you think, ha?
