Government bond: Difference between revisions
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Government bonds are usually referred to as [[risk-free bond]]s, because the government can raise taxes or simply print more money to redeem the bond at maturity. Some counterexamples do exist where a government has defaulted on its domestic currency debt, such as Russia in [[1998]], though this is very rare. |
Government bonds are usually referred to as [[risk-free bond]]s, because the government can raise taxes or simply print more money to redeem the bond at maturity. Some counterexamples do exist where a government has defaulted on its domestic currency debt, such as Russia in [[1998]], though this is very rare. |
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As an example, in the US, [[Treasury security|Treasury securities]] are denominated in [[US dollar]]s and are the safest US dollar investments. In this instance, the term ''risk-free'' means free of [[credit risk]]. However, other risks still exist: such as currency risk for foreign investors (for example non-US investors of US Treasuries would have received lower returns in [[2004]] because the value of the US dollar declined against most other currencies). Secondly, there is [[inflation]] risk - in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation outturn is higher than expected. Many governments issue [[inflation-indexed bond |
As an example, in the US, [[Treasury security|Treasury securities]] are denominated in [[US dollar]]s and are the safest US dollar investments. In this instance, the term ''risk-free'' means free of [[credit risk]]. However, other risks still exist: such as currency risk for foreign investors (for example non-US investors of US Treasuries would have received lower returns in [[2004]] because the value of the US dollar declined against most other currencies). Secondly, there is [[inflation]] risk - in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation outturn is higher than expected. Many governments issue [[inflation-indexed bond]]s, which protect investors against inflation risk. |
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An example of somewhat risky bonds issued by a government can be given with countries that have less than perfect capabilities of conducting financial policies. Such an example is [[Bulgaria]] due to its being dependent on the world economy and economic institutions much more than, say, the US. Some of this country's bonds were only given an A-scale rating after 2004. As of February 2006 Standard & Poor's rates Bulgaria's long-term debt denominated in domestic currency at BBB+. And this rating is the result of almost a decade of constantly decreasing risk (and increasing ratings). We should also note that this country's short-term debt is in fact currently rated A. |
An example of somewhat risky bonds issued by a government can be given with countries that have less than perfect capabilities of conducting financial policies. Such an example is [[Bulgaria]] due to its being dependent on the world economy and economic institutions much more than, say, the US. Some of this country's bonds were only given an A-scale rating after 2004. As of February 2006 Standard & Poor's rates Bulgaria's long-term debt denominated in domestic currency at BBB+. And this rating is the result of almost a decade of constantly decreasing risk (and increasing ratings). We should also note that this country's short-term debt is in fact currently rated A. |
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*[[Government debt]] |
*[[Government debt]] |
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*[[List of government bonds]] |
*[[List of government bonds]] |
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=List of government bonds from the main issuers= |
=List of government bonds from the main issuers= |
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Revision as of 02:08, 18 October 2006
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A government bond is a bond issued by a national government denominated in the country's own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds.
Risk
Government bonds are usually referred to as risk-free bonds, because the government can raise taxes or simply print more money to redeem the bond at maturity. Some counterexamples do exist where a government has defaulted on its domestic currency debt, such as Russia in 1998, though this is very rare.
As an example, in the US, Treasury securities are denominated in US dollars and are the safest US dollar investments. In this instance, the term risk-free means free of credit risk. However, other risks still exist: such as currency risk for foreign investors (for example non-US investors of US Treasuries would have received lower returns in 2004 because the value of the US dollar declined against most other currencies). Secondly, there is inflation risk - in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation outturn is higher than expected. Many governments issue inflation-indexed bonds, which protect investors against inflation risk.
An example of somewhat risky bonds issued by a government can be given with countries that have less than perfect capabilities of conducting financial policies. Such an example is Bulgaria due to its being dependent on the world economy and economic institutions much more than, say, the US. Some of this country's bonds were only given an A-scale rating after 2004. As of February 2006 Standard & Poor's rates Bulgaria's long-term debt denominated in domestic currency at BBB+. And this rating is the result of almost a decade of constantly decreasing risk (and increasing ratings). We should also note that this country's short-term debt is in fact currently rated A.
Issuance
Government bonds are issued through agencies that are part of the government's treasury department, for example
- Bunds are bonds issued by the German Finance Agency, denominated in euros
- Gilts are bonds issued by the UK Debt Management Office and are denominated in sterling
- US Treasuries are issued by the Bureau of the Public Debt
See also
List of government bonds from the main issuers
- for a comprehensive list of government bonds, see List of government bonds
| Currency | Country | Generic Name or Nickname | Rating (S&P/Moody's) | Negociable debt at mid-2005 (US dollar bn equivalent) | Government financial liabilities as % of GDP (end 2003 - source : OECD) | Issuer | Internet site |
|---|---|---|---|---|---|---|---|
| Yen |  Japan
|
JGBs | AA-/A2 | 6,666 | 157.5% | Ministry of Finance (MoF) | Site |
| US dollar |  United States
|
US Treasuries | AAA/Aaa | 4,000 | 62.5% | Bureau of the Public Debt | Site |
| Euro |  Italy
|
BTPs | AA- with negative outlook/Aa2 | 1,530 | 120.9% | Dipartimento del Tesoro | Site |
| Euro |  France
|
OATs | AAA/Aaa | 1,300 | 71.2% | Agence France Trésor | Site |
| Euro |  Germany
|
Bunds | AAA/Aaa | 1,020 | 65.1% | Finanzagentur GmbH | Site |
| Pound sterling |  United Kingdom
|
Gilts | AAA/Aaa | 703 | 42.0% | UK Debt Management Office | Site |
Asia
Japan (AA-/A2)
Issued By: Ministry of Finance (MoF)
- Japanese Government Bonds (JGBs)
- Revenue Bonds/Straight Bonds
- Financing Bills
- Subsidy Bonds
- Subscription Bonds
- Contribution Bonds
- Demand Bonds (kofu kokusai)
Europe
Eurozone
France (AAA/Aaa)
Issued By: Agence France Trésor, the French Debt Agency
Germany (AAA/Aaa)
Issued By: Finanzagentur GmbH, the German Finance Agency
- Bunds
- Bubill - bills
- Bundesschatzanweisungen (Schätze) - 2 year notes
- Bundesobligationen (Bobls) - 5 year notes
- Bundesanleihen (Bunds) - bonds
Italy (AA- "with negative outlook"/Aa2)
Issued By: Dipartimento del Tesoro
United Kingdom (AAA/Aaa)
Issued By: UK Debt Management Office
North America
United States (AAA/Aaa)
Issued By: Bureau of the Public Debt