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Government Bond

A government bond is a debt security issued by a national government to raise funds for public spending. These bonds are considered low-risk investments because they are backed by the government’s ability to tax and print money. Government bonds pay periodic interest (coupons) and return the principal at maturity. They are used by investors to diversify portfolios, preserve capital, and generate steady income, especially in times of economic uncertainty.

Example

The U.S. Treasury issues 10-year government bonds, offering investors a fixed interest rate and the promise of principal repayment at maturity, making them a safe investment choice.

Key points

• Debt securities issued by national governments to finance public expenditures.

• Considered low-risk due to government backing and reliable interest payments.

• Popular among investors for diversification, income generation, and capital preservation.

Quick Answers to Curious Questions

They are backed by the full faith and credit of the issuing government, making default unlikely and providing a secure income stream.

Government bonds provide stable income, diversification, and a safe haven during market volatility, protecting portfolios from more volatile assets.

When interest rates rise, bond prices typically fall, and vice versa, affecting the market value of existing bonds and influencing investor decisions.