Government bond

A government bond is a financial bond issued by a government. 

If the bond is issued in a currency that the government controls then it defines the risk-free rate of return for that currency. This is because governments control money supply; they control the issue or printing of money.

Bonds issued by the British government are usually referred to as gilts and those issued by the U.S. government are usually called treasuries, short for "Treasury Note". Alongside bonds issued by the Japanese government and the E.U. central bank, these are the world's most stable and reliable securities.

Governments of many other countries must borrow in currencies that they do not control - this makes their bonds more risky and has led to debt crises in countries like Argentina and Greece.

Because they are considered zero risk, government bonds have an essential role in the financial system. For example, banks and insurance companies are legally required to hold them as collateral against their liabilities.

Category:Finance