How are government bonds issued

Government bonds

Do you buy one Government bond, one grants the respective state a loan. With the property you have a claim against the state that issued it, you are its creditor. Trading in government bonds is nothing more than trading in promissory notes that entitle the owner to demand money from the state. The state in turn issues such promissory notes in order to raise money in order to remain liquid. The purchase of government bonds is possible with very small amounts, so the offer is not aimed exclusively at medium-sized and large investors, like many other investment options. In principle, the issue of government bonds is nothing more than a classic form of crowd investing: the billions that a state wants to borrow at a certain point in time is distributed among many investors.

Different types

Even if the basic principle is common to all forms of government bonds, the details vary from country to country and from type to type. There are essentially three different types of German government bonds:

  • Federal bonds
  • Federal Treasury Notes
  • Federal bonds

Federal bonds

The classic Federal bonds work according to the following principle: They are issued on a previously announced date with a term of ten or 30 years at a fixed price. From this point on, these investment products are traded on the stock exchange and are freely accessible. At the end of each year the owner becomes one non-variable interest rate paid out after the bonds expire Face value of the government bonds held. They work according to the same principle Bund-Länder bonds, the only differences are the term (seven years) and the fact that these bonds are issued jointly by both. Then there is Day bondswhich, as the name suggests, can be bought and sold on a daily basis. This is a non-interest-bearing bond, the gain in value of which is determined by the state by increasing the issue and redemption prices every day.

Federal Treasury Notes

This investment product is basically government bonds, only with a significantly shorter term of just two years and thus a lower interest rate. There is also the interest-free treasury billsthat are paid out after an even shorter period (six or twelve months). Because they do not bear interest, they are issued at a lower rate than their face value. They are not traded on the stock exchange.

Federal bonds

This type of investment is similar to the two investment products mentioned above, but its term is five years. They are therefore considered to be a medium-term investment.

In addition, other federal securities are used to repay the national debt that has arisen through borrowed capital. In addition to the options mentioned above, these also include:
* Federal Treasury Bills * Federal funding treasures * Treasury discount bills.

Investment opportunities and risks

Most government bonds are traded on the stock exchange, so it's easy to buy. Even those that are only traded over the counter can usually be obtained from the bank at which you have your custody account or from a broker. It is also possible to add shares and Fundswho hold government bonds to buy. There are funds that only invest in bonds from different countries, but there are also funds that only hold government bonds in their portfolio as a safe and crisis-resistant item. Government bonds are widely regarded as safe and touted as securities for risk-averse investors. German government bonds are even gilt-edged, which means they can be bought by an asset manager for a person who is not responsible. This type of investment is subject to particularly strict rules in terms of risk. However, the risk is different between the bonds of different countries. For states whose credit-worthiness is questionable, there is a higher risk of default with this type of investment. As a result, it is more difficult for these countries to find willing donors on the international financial market. That is why such government bonds have much better interest rates, so that a higher return can be expected. This opens up the potential buyers who are prepared to take a proportionate risk in anticipation of a comparatively high profit. Such a development has recently been observed in euro countries that were on the verge of national bankruptcy and for whose government bonds the interest rate was sometimes over 30%.


The European Central Bank (ECB) and its president Mario Draghi are trying to revive the economy. A massive purchase program of government bonds, among other things, has therefore been launched since the beginning of 2015. As a result, government bonds are less profitable for private investors Interest rates on government bonds have fallen.
All in all, government bonds are relatively diverse: As a rule, they are a very safe investment, but they can also be used speculatively (either by betting on an uncertain payout, or by speculating on price changes during the term).
But not only the bond purchases should revive the economy. The European Central Bank also has one Penalty interest introduced to force banks to give away their excess money to companies. Also the saver The low interest rates caused by the ECB are intended to encourage them to invest their money instead of parking it in bank accounts.

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