Government Bonds Introduction
Government bonds are debt securities issued by a government to finance public spending. They are considered low-risk investments and offer regular interest payments to bondholders.
How Bonds Work
When you buy a government bond, you lend money to the government. In return, the government promises to pay back the face value on a specific date, plus periodic interest payments.
Types of Government Bonds
Different types include Treasury bonds, savings bonds, and municipal bonds. Each type has varying terms, tax implications, and purposes, catering to diverse investor needs.
Risk and Returns
While considered safe, bonds can still carry risks like inflation and interest rate changes. However, they often have lower volatility compared to stocks, balancing investment portfolios.
Bonds and Economy
Governments issue bonds not just to finance deficits, but also to control monetary policy. Bond sales can help manage the economy's money supply and influence interest rates.
Secondary Market Dynamics
Once issued, government bonds can be traded on secondary markets. Their prices fluctuate with market conditions, allowing investors to buy and sell bonds before they mature.
International Bond Market
Government bonds can also attract international investors, who use them to diversify portfolios and manage currency exposure, affecting foreign exchange rates and global financial relations.
What do government bonds finance?
Private sector projects
Personal loans
Public spending
Company
