Government Markets In-Depth

Overview

Government bonds are bonds that are issued by central governments. Governments issue bonds to borrow money to cover the gap between the amount they receive in taxes and the amount they spend; to re-fund existing debt; and/or to raise capital. Government bonds are usually considered the highest quality bonds in the market because they are backed by central governments (unless of course they are emerging market bonds where defaults are a serious risk in many cases). Most individual investors focus on buying and selling government bonds.

In Europe, Government Bonds are also called sovereign bonds. In the UK, Government Bonds are also called gilts; in France, OATs; in Germany, Bunds; in Italy, among other terms, BTPs. In the US, Government Bonds are also called US Treasuries or T-Bills.

Each government in Europe issues bonds and individual investors across Europe buy bonds in their country of residence, whether in Europe or abroad. But investors can also invest in government bonds issued outside their country of residence. With the development of the Euro currency, Euro-zone investors can also buy government bonds in other Euro-Zone countries without incurring additional currency risk (assuming they are bonds issued in those countries in Euros). At the same time, individual government bond issues need to be attractive to investors from different countries.