Government Bonds

Almost all governments borrow money to fund their operations – like building bridges, for example. They usually borrow money by issuing bonds to investors: “government bonds”. If a government borrows money in its country’s own currency, it’s unlikely that it will ever not pay it back (i.e. default on it), because it can simply print more money. However, the value of the currency in question is a potential concern to investors. If a government keeps printing more money, the money will be worth less – so when investors get their money back, they might not be able to do as much with it. Governments do borrow money in currencies other than their own sometimes, especially emerging market countries. The ability of the country to pay back that money is then the main risk for investors. Government bonds are publicly traded, which means that their price is set by the market – if there are lots of people wanting to buy US government bonds, then their price will go up (and vice versa).