Government Bond

Government bonds (also called government securities) are bonds issued by a country’s national government or its agencies.

By buying government bonds, investors lend money to the government for an agreed-upon loan term. At the end of the loan term, the government repays the money with interest.

Government bonds are generally categorized as short-term bonds (4 years or less), medium-term bonds (4 to 8 years), and long-term bonds (more than 8 years).

Government bonds may be issued by the government itself or by a third party.

Whether bonds are publicly listed or privately listed will depend on the government bonds in question. Publicly listed government bonds may be available for purchase on an ongoing basis for a fixed price, or sold through a predefined auction process.

An example of government obligations which can be bought at a fixed price are German federal treasury notes (Bundesschatzbriefe). These cannot be traded on the stock exchange.

Swiss federal bonds, on the other hand, are an example of government bonds that are auctioned off upon issuance.

Swiss federal bonds are sold using the Dutch tender process, which means that all bidders end up paying the identical price. Where the U.S. tender process is used, each bidder pays the price they bid, which means that a buyer could end up paying much more for a bond than its nominal value would dictate. These bonds are said to be issued above par. It’s also possible for newly issued bonds to be sold on par or even below par.

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Expert Benjamin Manz
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