Government bond

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    Government bondGovernment bonds are bonds – debt instruments – issued by national governments. Sometimes, they are also called “sovereign bonds”.

    The investor (who buys the bonds) loans a certain amount of money to a country. The country promises to pay back the amount (the face value) at a certain date, plus periodic interest payments. Government bonds are usually denominated in the country’s own currency.

    Government bonds are often seen as risk-free bonds because the government can raise taxes or create additional currency in order to redeem the bond at maturity.

    Some counterexamples do exist where a government has defaulted on its domestic currency debt, such as Russia in 1998 (the “ruble crisis”), though this is very rare. Another example is Greece in 2011. Its bonds were considered very risky, in part because Greece, being part of the eurozone, did not have its own currency.