What Are Government Bonds?

Government bonds are debt instruments issued by the government to fundraise and promise to pay interest and repay principal over a certain period of time, specifically including state bonds, i.e., central government bonds, local government bonds and government guaranteed bonds, the most important of which are government bonds. In addition to bonds issued directly by government departments, some countries classify government-guaranteed bonds as part of the government bond system and call them government-guaranteed bonds. These bonds are issued by companies or financial institutions that have a direct relationship with the government and are guaranteed by the government.

Features of government bonds
1, High security. Government bonds are bonds issued by the bond, and the government assumes the responsibility of repaying the principal and interest. Among all types of bonds, government bonds have the highest credit rating and are often referred to as "gilt-edged bonds".

2, Strong liquidity. Government bonds are a national debt and are generally issued in very large volumes, with good credit, strong competitiveness and market attributes. Therefore, the secondary market for national government bonds is very well developed.

3, Stable income. The payment of interest on government bonds is guaranteed by the government and their creditworthiness is low risk. Most of the principal and interest of government bonds are fixed and guaranteed, so the trading price will not fluctuate greatly.

4, Tax-free treatment. Government bonds are the government's own debts. In order to encourage people to invest, most countries provide that the proceeds from the purchase of government bonds can enjoy tax-free treatment.

The difference between municipal bonds and government bonds
1, Different issuing institutions
Municipal bonds are bonds issued by city governments or subordinate departments, and the funds raised are mainly used for the construction of transport roads, bridges, hospitals and other municipalities. Government bonds are issued by the state, which is divided into central government bonds and local government bonds, with central government bonds being the national bonds we know.

2,Different security
The general liability bonds in municipal bonds are financed by local tax revenue, so there is less risk of default or deferred payment, while revenue bonds may be issued by designated financing units, and the repayment funds come from the income of investment projects, so there is a certain risk of default or deferred payment. As government bonds are regulated and the government is responsible for the repayment of principal and interest, the safety of government bonds is relatively high and they are known as gilts.

3, Different liquidity
Municipal construction projects tend to have a longer life cycle, so the liquidity of municipal bonds is slightly less. Government bonds are highly liquid, especially treasury bonds.