Definition of 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.

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