Government bond

Governments borrow by selling bonds to investors, usually through regular auctions run by a treasury or debt management agency. The bonds come in a range of maturities, from short-term bills to bonds of thirty years or more, and include both conventional bonds with fixed coupons and inflation-linked bonds. Well-known examples are gilts in the United Kingdom, Treasuries in the United States, Bunds in Germany and OATs in France. Because they are issued in large volumes and traded constantly, major government bond markets are among the most liquid in the world.

Bonds from financially strong governments that borrow in their own currency are generally treated as the closest thing to a risk-free asset in that currency, since the state can raise taxes and its central bank issues the currency. That does not make them riskless. Their prices fall when interest rates rise, sometimes sharply for long maturities, and inflation can erode their real value. Governments that borrow in a currency they do not control, such as individual euro-area members or countries borrowing in dollars, carry more credit risk, and some have defaulted or restructured their debt.