the government issues bonds

An Overview of Government Bonds

The nation can finance their debts in one way: through a government bond. This bond provides great benefits for investors, such as guaranteed security and returns. Many companies issue government bonds; however, the United States Treasury issues the best known government bonds.

What are Government Bonds?

A government bond is a type of bond that is issued by the national government. All Government bonds carry government currencies; usually, these government bonds are considered debt investments, typically, the buyer or investor is actually loaning the money in a certain amount of time; with certain government bond rates to the government who issued it. Some countries issue bonds in foreign currencies; these bonds are called sovereign bonds. Government bonds are also sold in the stock market, where the cost of each unit can fluctuate. A government bond can also be bought through banks, stock brokers, or through the government's debt management office.

The government bond rates usually have higher interest rates than usual, and these government bond rates are fixed annually. The fixed-rate makes this a risk-free investment. Many investors prefer the risk-free government bond rates for one reason: their money will surely increase in general. It may be less profitable than equities, but it's less risky as well. Government bond rates differ from country to country, and you should check with the issuer on how high or low the rates will be. The interest of these bonds change twice a year, but they remain fixed for six months. The government bond yield can show a representation of what the bond curves look like. Tax free Government bonds also attract investors to invest.

Getting the most from your Investment

Government bond yield curves are falling, which means the longer the maturity period of the bond, the higher the profit or yield. This explains why government bond yield curves increases overtime. The market may anticipate a change in the unit prices. So if people wait to invest, they can invest in the future to receive a better return. Investors that are willing to invest their money now should be compensated by having a higher interest rate in their long-term government bond investments.

Government bond yield curves show investors what the market will be like in the future, so if they are willing to invest their money now and the market goes down, they will still be able to earn profits from their investment. Investments are usually taxed as well, but there is tax free government bonds within government securities that keep you from paying taxes on your profit. Usually, governments issue tax free government bonds if they want to raise money for a government project. These projects are not always available; the government only issues tax free government bonds when the need for money arises in a short period of time. Also, these kinds of bonds are voted by the legislature before they become available. Nevertheless, tax free government bonds are only purchased through authorized brokers, and not all brokers sells them. Government bonds are great investments, the security and assurance it provides makes it essential. Government securities are issued by the U.S. Treasury. Treasury bills are issued by the government; these bills are short-term bonds with maturities of up to one year.

Considerations: Investing in government bonds will strengthen your portfolio; unless you fear your investments will collapse. These type of bonds don't guarantee exceptional returns.

Last Updated: October 08, 2015