Also referred to as Sovereign
These are instruments that represent a loan to a government
Bonds issued by any G20 government are considered default risk free and therefore offer a risk-free return and will all be triple A (AAA) rated
Governments find that their income from taxes does not come in at a steady rate, nor is there expenditure at a steady rate.
In addition to raising money for medium-to-long term they also need to borrow for shorter periods and balance their cash flow.
Different countries have different names for these
Bonds issued with a maturity date of less than a year are considered to be "money market" debt.
The most common types of bonds are those issued by governments. Also known as gilt-edged securities (or gilts).
The most common type of bons is the vanilla bond which pays a fixed coupon either annually or semi-annually.
The government needs an efficient market in its own longer-term debt; this part of the stock market is known as the gilt-edged market. Gilt edged stocks or "gilts" are simply used to refer to british government bonds or government stocks.
Almost always these seem to dominant the bond market, most modern governments are running a budget deficit and this leads to large scale issues of bonds. Sometimes the secondary market is run on a stock exchange (UK, France, Germany) and sometimes not (US)
There are many different types of bonds that can be issued:
Vanilla Bond - (bullet bond, conventional bond). These are the most common paying a fixed regular coupon either annually or semi-annually over a fixed period to maturity with the return of the principal,
Most government bonds are issued via auctions while non government are generally sold via public placement.(underwritten by banks)
Because of increases in the number and size of bond portfolios. Many fund managers and investors rely on bond indexes as benchamrks for measuring portfolio performance
Government bonds may be sold on a striking price basis (its then called a tenor) or on a bid price basis (its then called an auction)
When everyone pays the same price - "striking price" auction
When everyone pays what they bid - "bid price" auction
example - Barclays Capital Aggregate
contains investment grade government and government related, corporate, asset backed and mortgage backed
A bond is a loan in which the issuer is the borrower and the investor is the lender.
Coupon bearing bonds pay out a known amount typically every six months or year.
Bonds settle T+3
German Government Bonds
These are called bunds
French Government Bonds
Also known as Obligations Assimilables du Tresor (OAT)
These have a "dated" date that is before the "issue" date.
Japanese Government Bonds
In Japan Government bonds are sold by auction by the Ministry of Finance, 4% are sold to bank syndciate in agreed proportions; 60% are sold by the action method. 2, 5 and 10 year bonds are sold monthly and 20 year bonds are sold quarterly. Interest payments are semi-annual.
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