Government Bond

What is a government bond?

A government bond is a form of security sold by the government. It is called a fixed income security since it procures a fixed amount of interest consistently as long as necessary. The purpose of a government bond is to fund-raise to operate the government and to pay down debt.
Government bonds are viewed as secure. That is, it is far-fetched that the government will default. Bonds have maturity dates that might change from one month to 30 years.

More profound definition

Government bonds might be issued by the federal government or one of its agencies. Bonds issued by nearby government agencies are called municipal bonds and are not viewed as secure as U.S government bonds.
There are four categories of U.S. Treasury securities:

• Treasury bills are bonds that mature in under one year.
• Treasury notes have a maturity date somewhere in the range of one and 10 years.
• Treasury bonds are longer-term bonds, with a maturity date that is over 10 years.
• Treasury inflation protected security, or TIPS, is a marginally unique form of government bond. It has an interest rate adjusted semiannually in accordance with inflation.

Government bonds can be freely traded, and the price at which they trade is connected with the interest rate of the bond, its leftover life and the current rate of interest on new bonds.
Interest earned from government bonds is just taxed at a federal level and not at a state level. By comparison, interest on municipal bonds is free of both federal and state tax, gave the investor lives in the state or municipality that issued the bond.

Government bond model

On the off chance that you buy a government bond, you buy it for not as much as face value. At the point when the bond arrives at maturity, you receive the face value, or the par value, of the bond.
Treasury bills don't pay coupon interest, however Treasury bonds and notes do on a semiannual basis.
Assuming that you sell the bond before maturity, what you get back relies upon the overall interest rates. In the event that interest rates have increased since the bond was purchased, the bondholder might need to sell at a discount below par. Yet, in the event that interest rates have fallen, the bondholder might have the option to sell at a premium better than expected.
You might need to pay a commission for the transaction or your broker might take a "markdown." A markdown is an amount, typically a percentage, by which your broker decreases the sales price to cover the cost of the transaction and create a gain on it.

Features

• A government bond addresses debt that is issued by a government and sold to investors to support government spending.
• Government bonds are viewed as low-risk investments since the government backs them. There are different types of bonds that are offered by the U.S. Treasury are viewed as among the most secure in the world.
• Some government bonds might pay periodic interest payments. Other government bonds don't pay coupons and are sold at a discount all things being equal.
• Due to their relative low risk, government bonds normally pay low interest rates.