Government securities

Government securities are defined as securities that are issued by a government to raise the funds necessary to pay for its expenses. These securities can come in the form of bonds, notes, and other debt instruments.

One of the easiest to understand type of government security is the government bond. Government bonds are simply bonds issued by a national government that is denominated in the local currency. Government bonds that are issued by a national government can also be denominated using a foreign currency. These kinds of government bond are called sovereign bonds.

Bonds are issued by governments to investors who then loan the government a specific amount of money. The whole loan principal and interest is paid back by the government within a specific time frame.

Government bonds and the other types of government securities are usually long-term securities and has the highest market ratings. The high market ratings make government securities attractive to investors since this means a very low risk investment. With government securities, you can be sure that you will be paid by the government in full and on time. Due to the “risk-free” nature of government bonds, they are usually called risk-free bonds. In case the government is hard up on money by the time the bond or other government securities need to be paid up, governments usually just simply issue new government securities to obtain new loans or raise taxes to increase revenue. It is indeed extremely rare for governments to every default on any of its local debts.

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