Government Bond

A bond issued by a national government in the currency of the nation is referred to as a government bond. (Those bonds issued by a government in foreign currency are called sovereign bonds.)

Government bonds are considered to be essentially risk free investments since governments have the option of either raising taxes or printing additional money to meet their bond obligations upon the date of maturity.

In the United States, for instance, Treasury Department securities denominated in U.S. dollars are considered to be the safest of all available investments and are regarded as "money in the bank." (If foreign investors purchase these bonds they can face instances of decreased returns during periods when the U.S. dollar has declined in value against other currencies.)

Treasury bonds do carry the risk of inflation, meaning that the principal used to purchase the bond could have less purchasing power at the date of redemption than at the time of purchase.

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