May 8th, 2011 | 
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A government bond is a financial security used by the government of the country to mainly regulate the volume of circulating cash in the economy.
Investing in different types of government bonds is much more secure than doing the same in the stock market, because you can be almost certain that u will be able to redeem it. In case of any cash crunch faced by the government, it can always print new cash to pay off the debts. However, one can never be sure to regain his invested capital, because like any other investment risk, bond prices can fluctuate as well.
The primary issuers of bonds are by the governments of Japan (JGBs), America’s U.S. Treasuries, Italy’s BTPs, France (OATS), the Bonds of Germany and the Gilts of England. The latter is the oldest issuer of bonds, starting in 1693 with the purpose of collecting money for their war against France.
Some well-known types of government bonds include:
U.S. Treasury Issues
They are the safest among other types of government bonds as far as public investment in the country is concerned. But you pay a price for this security by earning a very low interest on it. However, all the interest income is free of tax. These bonds include treasury bills (10 years maturity starting from $1000 to $1,000,000. Although America no longer issues new treasury bonds, one can still invest by buying it from the secondary market. Treasury notes have a maturity of 2 to 10 years valued at $1000. There are two kinds of bids to this note: competitive and noncompetitive. Treasury Inflation Protected Security (TIPS) are bonds sold at $1000, with a 5, 10, or 20-year maturity. The principal is adjusted half yearly to even out the inflation effect on it, after which a fixed rate of capital interest is calculated on it. Treasury bills are more like cash management tools with maturity tenure of 4 to 26 weeks.
Agency Bonds
The Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), the Federal Home Mortgage Corporation (Freddie Mae), and the Student Loan Marketing Association (Sallie Mae) are all financial institutions owned by the Government of USA. They are entitled to issue what is known as Agency Bonds. Hence, they work as agencies of the government.
Municipal and Corporate Bonds
Every Municipality needs financial support to carry on work in their area. Hence, states, counties, districts, and townships issue such bonds to bring in cash for looking after the infrastructural needs of the surrounding areas.
Corporate bonds are of huge amounts, mainly issued to finance major infrastructural developments like bridges, roads, and buildings. They are of two types: convertible (can be converted into common stock) and callable (can be redeemed before maturity).
Zero Coupon Bonds
This type of government bond can be issues by many entities. It has no regular interest payment against it. It is bought on a great discount but redeemed at face value.
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