Government bond

What is a Government Bond?

A government bond is a form of debt that a national government issues. It is a financial tool with which the government borrows money from investors. The government will repay the principal on the bond's maturity date. In return, the bondholder will get regular fixed payments, called interest or coupon. This interest is the income you earn on your investment and is often paid twice a year.

Key Features of a Government Bond

You buy government bonds for a set amount, called the face value. This is the amount you will get back when the bond matures. You can buy them at auctions or on the secondary market for trading. In the trading world, these bonds are often seen as less risky compared to corporate bonds. Here, the risk is that the government could default on its debt. Yet, this is very rare for developed countries.

Why Trade in Government Bonds?

You can trade in government bonds to make a profit and to spread your risks. These bonds usually offer stable and regular income. They are a good part of any diversified investment portfolio. But remember, these are long-term investments. They have maturities usually in the span of several years to decades.

The Relationship between Government Bonds and Market Situation

The state of the overall economy plays a big role in the value of government bonds. If the economy is doing well, the interest rates may rise. This leads to lower prices for already issued bonds. On the other hand, when the economy is unstable, people often flock to these bonds. This is because they see them as a safer investment. Therefore, the prices rise.

Trading in Government Bonds

With online trading platforms today, buying and selling government bonds is quite easy. But, keep in mind the inherent risks. You need to think about market volatility, changes in interest rates, and the risk of default. Make sure you have sound knowledge about the bond market and trading strategies before you start.