Bonds issued by government in the bond market are amongst the safest forms of investment. These are designated in the currency of the country, where the bond is issued.
Sovereign bonds, principally issued by the Economic and Monetary Union of the European Union, are also supplied by national governments.
Mainly available in the European bond market, they are normally brought out in foreign currencies.
Risk Free Government Bonds
Government bonds can be redeemed at any time by the government. This is done by printing more currency notes and increasing tax rates.
Government Bond Risks
There are several types of risks associated with the government bonds and are described as follows:
Inflation Risk: this is applicable if the levels of inflation are more than expected. In such cases the principal, which is paid at maturity, is lower than expected.
Currency Risk: this is applicable to foreign investors. If the value of a currency decreases, lower returns might be received on bonds issued in that currency.
Inflation-indexed bonds are brought out by the national governments and are supposed to protect the investors from any risk of inflation.
The following table gives an indication of government bonds issued in various countries and their details:
|Bonds||Country||Currency||Issuing Authority||Amount of Negotiable Debt in US dollars (2005)|
|OAT||France||Euro||Agence France Tresor||1,300|
|JGB||Japan||Yen||Ministry of Finance||6,666|
|Bunds||Germany||Euro||Finanzagentur Gmb H||1,020|
|US Treasuries||United States||US dollar||Bureau of the Public Debt||4,000|
|Gilts||United Kingdom||Pound Sterling||UK Debt Management Office||703|
|BTP||Italy||Euro||Dipartimento del Tisoro||1,530|
Last Updated on : 10th July 2013