Government bond
From Wikinfo
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
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Risks
Government bonds are usually called risk-free bonds, because the government can raise taxes or simply print more money to redeem the bond at maturity. Some counterexamples do exist where a government did not pay its domestic currency debt, such as Russia in 1998, though this is very rare. US Treasury securities are denominated in US dollars and are the safest US dollar investments. The term risk-free means free of credit risk. Other risks still exist. Firstly, foreign investors still have currency risk. For example, most non-US investors in US Treasuries would have been disappointed in 2004 because the value of the US dollar declined against most other currencies. Secondly, there is the risk of (high) inflation. The principal that is repaid at maturity will have less purchasing power than anticipated if inflation turns out to be higher than expected. The UK and many other nations issue inflation indexed bonds to dissolve this risk.
Issuance
Government bonds are issued through agencies that are part of the government's treasury department, for example
- Bunds are bonds issued by the German Finance Agency, denominated in euros
- Gilts are bonds issued by the UK Debt Management Office and are denominated in sterling
- US Treasuries are issued by the Bureau of the Public Debt
See also
References
- Adapted from the Wikipedia article, "Government_bond" http://en.wikipedia.org/wiki/Government_bond, used under the GNU Free Documentation License
