Definition
Government Bond
What is a “government bond”? What is the definition of a “government bond”? What does the term “government bond” mean?
A “government bond” occurs when a government or municipality borrows money from an investor.
In exchange for lending the government entity money, the investor is entitled to a regular interest payment, in addition to the repayment of the principal when the issue matures.
Many government bond issues are “safe” and have a low chance of default (compared to corporate offerings), but there is still some risk in investing in government bonds. Venezuela, for instance, has a very high chance of defaulting on their debt. Just because a sovereign nation issues a bond offering, it doesn’t mean that it is 100% safe.
Government bonds are seen as a good way of preserving capital while generating a modest return every year.
Most governments around the world depend on the issuing of new bonds to cover their deficit spending.
In exchange for lending the government entity money, the investor is entitled to a regular interest payment, in addition to the repayment of the principal when the issue matures.
Many government bond issues are “safe” and have a low chance of default (compared to corporate offerings), but there is still some risk in investing in government bonds. Venezuela, for instance, has a very high chance of defaulting on their debt. Just because a sovereign nation issues a bond offering, it doesn’t mean that it is 100% safe. Government bonds are seen as a good way of preserving capital while generating a modest return every year.
Most governments around the world depend on the issuing of new bonds to cover their deficit spending.