What is a government bond?

A government bond represents debt that is issued by a government and sold to investors to support government spending. Some government bonds may pay periodic interest payments. Other government bonds do not pay coupons and are sold at a discount instead. Government bonds are considered low-risk investments since the government backs them.

What is a sovereign bond?

Countries outside the U.S. issue bonds known as sovereign bonds or sovereign debt. Other national governments use these bonds for the same reasons the U.S. government does. Sovereign bonds can be denominated in a foreign currency, such as the U.S. dollar, or the government’s domestic currency.

Is a government bond a risk-free bond?

A government bond in a country's own currency is strictly speaking a risk-free bond, because the government can if necessary create additional currency in order to redeem the bond at maturity. For most governments, this is possible only through the issue of new bonds, as the governments have no possibility to create currency.

When was the first government bond issued?

The first bond issued by a national government was in 1694 when England needed to raise money to fund one of its wars against France. To finance the American Revolution, the fledgling U.S. government-issued bonds that were called loan certificates, and they raised $27 million for the war effort. How Do Government Bonds Work?