What is a government bond and how does it work?

A government bond is a debt security issued by a government to raise funds for various public expenditures, such as infrastructure projects, social programs, and public services. When an investor buys a government bond, they are essentially lending money to the government in exchange for periodic interest payments, known as the coupon. At the bond’s maturity, the government repays the principal amount to the bondholder. Government bonds are considered low-risk investments because they are backed by the government, and they often serve as a benchmark for other interest rates in the economy.