what is a government bond 
a government bond is a debt security issued by a government to support government spending and obligations government bonds can pay periodic interest payments called coupon payments government bonds issued by national governments are often considered low risk investments since the issuing government backs them government bonds issued by a federal government may also be known as sovereign debt investopedia nono floresgovernment bonds explainedgovernment bonds are issued by governments to raise money to finance projects or day to day operations 1 the u s treasury department sells the issued bonds during auctions at regular intervals throughout the year 2 only certain registered participants often large banks can buy u s government bonds directly at auction 3 when the government holds a bond auction each buyer submits its purchase bid and the auction continues until all the bonds are duly distributed 4some treasury bonds trade in the secondary market individual investors working with a financial institution or broker can buy and sell previously issued bonds through this marketplace treasuries are widely available for purchase through the u s treasury brokers and exchange traded funds etfs which contain a basket of securities 5fixed rate government bonds can have interest rate risk which occurs when interest rates are rising and investors are holding lower paying fixed rate bonds as compared to the market also only select bonds keep up with inflation which is a measure of price increases throughout the economy if a fixed rate government bond pays 2 per year for example and prices in the economy rise by 1 5 the investor is earning only 0 5 in real terms municipal government bondslocal governments may also issue bonds to fund projects such as infrastructure libraries or parks these are known as municipal bonds or munis and often carry certain tax advantages and exemptions for investors 1munis can be thought of as loans that investors make to local governments and they are used to fund public works such as parks libraries bridges and roads and other infrastructure they may be funded via local tax dollars or by revenue generated from the project e g a toll road 6although municipal bonds may have lower interest rates than riskier investments like corporate bonds or stocks they offer some stability and low default rates if you are interested in government bonds you may want to acquaint yourself with the following terms the u s vs foreign government bondsu s treasuries are nearly as close to risk free as an investment can get this low risk profile is because the issuing government backs the bonds government bonds from the u s treasury are some of the most secure worldwide while those floated by other countries may carry a greater degree of risk 5due to this nearly risk free nature market participants and analysts use treasuries as a benchmark in comparing the risk associated with securities the 10 year treasury bond is also used as a benchmark and guide for interest rates on lending products due to their low risk u s treasuries tend to offer lower rates of return relative to equities and corporate bonds however government backed bonds particularly those in emerging markets can carry risks that include country risk political risk and central bank risk including whether the banking system is solvent investors saw a bleak reminder of how risky some government bonds can be during the asian financial crisis of 1997 and 1998 7 during this crisis several asian nations were forced to devalue their currency which sent reverberations around the globe the crisis even caused russia to default on its debt the uses of government bondsgovernment bonds assist in funding deficits in the federal budget and are used to raise capital for various projects such as infrastructure spending however government bonds are also used by the federal reserve bank to control the nation s money supply 