Question

5. Identify and explain the types of government-issued bonds

Answer 1

• How do government bonds work?

  When you buy a government bond, you lend the government an agreed amount of money for an agreed period of time. In return, the government will pay you back a set level of interest at regular periods, known as the coupon. This makes bonds a fixed-income asset.

  Once the bond expires, you'll get back to your original investment. The day on which you get your original investment back is called the maturity date. Different bonds will come with different maturity dates - you could buy a bond that matures in less than a year, or one that matures in 30 years or more.

• In the US , bonds are referred to as treasuries
• U.S. Treasuries are issued by the U.S. Department of the Treasury on behalf of the federal government. They carry the full faith and credit of the U.S. government, making them a safe and popular investment. Types of U.S. Treasury debt include:
  • Treasury Bills. Short-term securities maturing in a few days to 52 weeks
  • Treasury Notes. Longer-term securities maturing within ten years
  • Treasury Bonds. Long-term securities that typically mature in 30 years and pay interest every six months
  • TIPS. Treasury Inflation-Protected Securities are notes and bonds whose principal is adjusted based on changes in the Consumer Price Index. TIPS pay interest every six months and are issued with maturities of five, ten, and 30 years.