European Government Bonds
Types of Bonds
European Government Bonds
Although individual countries in Europe still have national bond markets where governments, sub sovereign entities and corporations in residence issue bonds, and individual investors participate, the European market, especially across the Euro-zone countries, is increasingly acting like one market. This website www.investinginbonds.eu gives you an overview of the kinds of information that will allow you to Learn More about bonds and investing in the various types of bonds and bond markets in Europe.
Individual investors should focus largely on participation in the secondary bond markets, which is where bonds are traded once they are issued in the primary markets. In some countries such as Spain, investors can participate directly in the auction of a bond in the primary market when it is issued; in general, though, investors will participate by buying bonds through their broker or local bank, which will already have purchased the bond usually via a third party from the government issuer.
The primary advantage of considering investing in government bonds is comparative safety of the investment, in particular, the promise that interest and principal will be paid on time. Because payments of straight government bonds are predictable, many people invest in them to preserve and increase their capital and to receive a dependable income stream—to help meet living expenses during retirement, for example, or to fund specific objectives. Another advantage of government bonds is that they are available with a wide range of maturity dates. This allows an investor to structure a portfolio to achieve financial goals at specific time horizons.
Government bonds discussed here (as opposed to emerging market government bonds) are largely free from principal risk, but not entirely from credit risk, as government bonds are always subject to downgrades in credit ratings. Government bonds discussed here are affected by other types of risk, principally interest-rate risk and inflation risk. While investors are effectively guaranteed to receive interest and principal as promised, the underlying value of the bond itself may change depending on the direction of interest rates. As with all fixed-income securities, if interest rates in general rise after a government bond security is issued, the value of the issued security will fall, since bonds paying higher rates will come into the market. Similarly, if interest rates fall, the value of the older, higher-paying bond will rise in comparison with new issues. Nevertheless, the interest payable (called the coupon) will remain the same for the investor assuming it is a fixed rate bond; only its value will change if you sell it before maturity.
Investors can invest in bonds issued by the country in which they live; but also in bonds issued by other governments. National treasuries have made an effort to improve the value of their government bond issues to investors. For example, they have made their bonds more similar in structure and characteristics to those in other Eurozone countries.
National treasuries have also made it a priority goal to keep the bond market liquid and accessible to both institutional investors and individual investors, that is, to have a bond market where there are ready buyers and sellers willing to trade at competitive prices for both institutional investors such as pension funds and insurance companies but also individual investors.
Some individual investors invest in bond funds, to take advantage of a portfolio of European government bond issues. A number of sovereign governments issue bonds that are similar in characteristics or features—index-linked bonds, zero coupon bonds, etc. However, the terms, structures, requirements, tax implications and other details are different. It is important to make sure you understand how each government structures its bond issues before you invest. Take financial or tax advice when you need help.
Below is information on five key European Central Government Issuers, including descriptions of government bonds, information on how to buy and sell them, and resource links.
Additionally, you will find website links to each European Government Issuers of Government Bonds in our Resource Centre. These websites will tell you about the government bonds issued in these countries and how to invest in them.