when the federal reserve repurchases u s government bonds the money supply increases throughout the economy as sellers receive funds to spend or invest in the market any funds deposited into banks are in turn used by those financial institutions to loan to companies and individuals further boosting economic activity 
pros and cons of government bondsas with all investments government bonds provide both benefits and disadvantages to the bondholder on the upside these debt securities tend to return a steady stream of interest income however this return is usually lower than other products on the market due to the reduced level of risk involved in their investments the market for u s government bonds is very liquid allowing the holder to resell them on the secondary bond market easily there are even etfs and mutual funds that focus their investment on treasury bonds fixed rate bonds may fall behind during periods of increasing inflation or rising market interest rates also foreign bonds are exposed to sovereign or governmental risk changes in currency rates and have a higher risk of default some u s treasury bonds are free of state and federal taxes however the investor of foreign bonds may face taxes on income from these foreign investments pay a steady interest income returnlow risk of default for u s bondsexempt from state and local taxesa liquid market for resellingassessable through mutual funds and etfsoffer low rates of returnfixed income falls behind with rising inflationcarry risk when market interest rates increasedefault and other risks on foreign bondsexamples of u s government bondsthere are various types of bonds offered by the u s treasury that have various maturities in addition some bonds return regular interest payments while some do not in the u s the national debt refers largely to the notional value of outstanding government bonds the largest portion of the national debt approximately 27 trillion is held by the public intragovernmental holdings make up approximately 7 1 trillion for a total debt of approximately 34 7 trillion as of q2 2024 8the u s treasury offers series ee bonds and series i savings bonds bonds sell at face value and have a fixed rate of interest bonds held for 20 years will reach their face value and effectively double series i bonds receive a semi annually calculated secondary rate tied to an inflation rate 9treasury notes t notes are intermediate term bonds maturing in two three five or 10 years that provide fixed coupon returns t notes typically have a 1 000 face value however two or three year maturities have a 5 000 face value 10treasury bonds t bonds are long term bonds having a maturity between 10 to 30 years t bonds give interest or coupon payments semi annually and have 1 000 face values 11 the bonds help to offset shortfalls in the federal budget also they help to regulate the nation s money supply and execute u s monetary policy treasury inflation protected securities tips are a treasury security indexed to inflation they protect investors from the adverse effects of rising prices the par value principal increases with inflation and decreases with deflation following the consumer price index cpi 12tips pay a fixed rate of interest determined on the bond s auction on a six months basis however interest payment amounts vary since the rate applies to the adjusted principal value of the bond tips have maturities of five 10 and 30 years 12 on nov 19 2020 the 10 year tips bond was auctioned with an interest rate of 0 867 if you buy government bonds and hold them until maturity you will enjoy regular coupon interest payments and a return of your initial investment when they mature during that time however the price of a government bond will fluctuate in the market bond prices have an inverse relationship with interest rates so when interest rates go up government bond prices go down in the secondary market because of this shorter term investors who do not buy and hold bonds until maturity can experience gains or losses in the market bond traders can also look to profit from the relative differences in the yields of certain bonds known as the spread for instance the spread between u s treasuries and highly rated corporate bonds another bond trading strategy is to bet on changes in the spread between different maturities known as the yield curve government bonds can provide a combination of considerable safety and relatively high returns however investors need to be aware that governments sometimes lack the ability or willingness to pay back their debts 