Government bond

A government bond or sovereign bond is a form of bond issued by a government to support public spending.[1] It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date.[2] The ratio of the annual interest payment to the current market price of the bond is called the current yield.

For example, a bondholder invests $20,000, called face value or principal, into a ten-year government bond with a 10% annual coupon; the government would pay the bondholder 10% interest ($2000 in this case) each year and repay the $20,000 original face value at the date of maturity (i.e. after ten years).

Government bonds can be denominated in a foreign currency or the government's domestic currency.[3] Countries with less stable economies tend to denominate their bonds in the currency of a country with a more stable economy (i.e. a hard currency).[3] International credit rating agencies provide ratings for each country's bonds.[4] Bondholders generally demand higher yields from riskier bonds; for example, during the Greek government-debt crisis, the spread (difference) in yields between two and ten-year Greek and German government bonds peaked at 26,000 and 4000 basis points, respectively.[5]

Governments close to a default are sometimes referred to as being in a sovereign debt crisis.[6][7]

  1. ^ "Bonds and Yields". IMF. Retrieved 29 August 2025.
  2. ^ "Bonds". Corporate Finance Institute. Retrieved 29 August 2025.
  3. ^ a b "An overview of trends in bond market issuance denominated in foreign currency" (PDF). European Central Bank. Retrieved 29 August 2025.
  4. ^ Amstad, Marlene; Packer, Frank (6 December 2015). "Sovereign ratings of advanced and emerging economies after the crisis". BIS Quarterly Review. Retrieved 29 August 2025.
  5. ^ Gibson, Heather D.; Hall, Stephen G.; Tavlas, George S. (March 2014). "Fundamentally Wrong: Market Pricing of Sovereigns and the Greek Financial Crisis". Journal of Macroeconomics. 39: 405–419. doi:10.1016/j.jmacro.2013.08.006.
  6. ^ "What is Sovereign Debt". Archived from the original on 2020-07-02. Retrieved 2014-08-02.
  7. ^ "Portugal sovereign debt crisis". Archived from the original on 2014-08-10. Retrieved 2014-08-02.
This article is issued from Wikipedia. The text is available under Creative Commons Attribution-Share Alike 4.0 unless otherwise noted. Additional terms may apply for the media files.