Government bonds are a document certifying the right of the owner to receive a stable and regular income in the form of a percentage amount. They are debt, which means that issuers of securities take money for a bond in a loan. The right to issue such documents belongs to state bodies, for example, the national bank or the Ministry of Finance.
As a rule, these securities serve as a tool to cover the budget deficit. Therefore, government bonds are issued to the stock market if it is necessary to implement the most important programs to improve the life of the country. This is not the only way of borrowing funds by the state, but the most productive. Of course, you can use the credit services of a national bank, but then the volume of loans to second-tier credit institutions will decrease significantly. And this will lead to an imbalance in the entire economy, as commercial credit organizations are considered the main link in financing industry and other industries, as well as in improving the welfare of the population.
In addition, government securities help the government engage the savings of the population in economic processes. It is no secret to anyone that a considerable share of cash is in the hands of individuals due to the lack of trust in the banking system. And this is not surprising, since people still remember the difficult times of the crisis. Securities issued by the state enjoy great confidence, which allows working for the benefit of the economy and that part of the funds that have not been used before. They also help attract foreign investment.
In some cases, the government uses government bonds as a tool to regulate the money supply in circulation. For example, if the amount of cash rises too quickly, and therefore, inflation is also accelerating significantly, then measures must be taken to reduce the latter. The issue of such securities in this situation allows government agencies to “pull out” part of the cash from circulation and hold it. In such a simple way, you can stabilize the national currency and strengthen it at the same level.
Why does the population prefer to buy government bonds? Firstly, they enjoy a high degree of trust, since the risk of non-return of funds under such documents is negligible. In this case, the government is the responsible person, which gives confidence in the timely return of money with payment of interest. It is worth noting that the interest rate on government securities is considered a guideline for many legal entities involved in issuing their own debt obligations. Recently, state short-term bonds have been most popular , and this is due to the unstable economic situation in the country. Whatever the confidence in the return of funds, but getting them within a year or three years is still safer than long-term lending.
In the total mass of government securities, two large groups can be distinguished: non-market and market. The latter are available for sale and available to all comers. These include Treasury notes, bills and bonds. Non-market ones can only be sold on the stock exchange, for example, pension and savings bonds.
In conclusion, we can conclude that government bonds are considered risk-free in the securities market. They allow the government to provide funding for important programs aimed at improving the lives of citizens. For example, they are used to implement a housing plan or to develop an agricultural industry.