Government Securities (Sovereign Bonds)

Definition

Treasury Bills are short-term government securities with a maturity of less than 1 year (commonly 91, 182, or 364 days). They are zero-coupon instruments, issued at a discount to their face value and redeemed at par.

How It Works

An investor buys a T-bill at a discount (e.g., $9,800 for a $10,000 bill). At maturity, the government pays the full $10,000. The difference ($200) is the investor’s return.

Example

Suppose you buy a 6-month T-bill with a face value of $10,000 at a price of $9,800.

• Maturity: 6 months
• Redemption: $10,000
• Return: $200 (≈ 4.08% annualized yield)

Used by: Central banks, institutional investors, and corporates as a safe parking place for short-term cash.

Definition

Treasury Notes are medium-term government securities with maturities between 2 and 10 years. They pay a fixed coupon (interest) every six months and return the principal at maturity.

How It Works

An investor buys a 5-year T-Note with a 4% annual coupon. They receive $40 per $1,000 bond every year (in two $20 payments). At the end of 5 years, the government repays the $1,000 principal.

Example

• Issue price: $1,000
• Coupon: 4% annually ($40/year)
• Maturity: 5 years
• Total Interest: $200
• Redemption: $1,000 at maturity

Used by: Pension funds, insurance companies, and retail investors seeking moderate-term stable income.

Definition

Treasury Bonds are long-term government securities with maturities of more than 10 years (often 20 or 30 years). They pay a semi-annual coupon and return principal at maturity.

How It Works

Similar to T-Notes but with longer duration and higher interest rate risk. Preferred by investors seeking predictable long-term cash flows.

Example

• Bond: 30-year T-Bond
• Coupon: 5% ($50 per year per $1,000)
• Payments: $25 every 6 months
• Redemption: $1,000 at maturity

Used by: Long-term investors (e.g., pension funds, sovereign wealth funds) to match long-term liabilities.

Definition

Inflation-Linked Bonds — called TIPS (Treasury Inflation-Protected Securities) in the U.S. — are bonds where the principal is adjusted based on inflation, protecting investors’ real purchasing power. The coupon rate is fixed, but it’s applied to the inflation-adjusted principal.

How It Works

Issued with a fixed coupon rate, the principal is adjusted periodically according to an inflation index (like CPI). At maturity, the investor receives the higher of the adjusted principal or the original principal.

Example

• Original principal: $1,000
• Coupon: 2% annually
• Inflation: 5%
• Adjusted principal: $1,050
• Coupon payment: 2% of $1,050 = $21

Used by: Conservative investors who want inflation-protected returns.

Definition

These are non-marketable government bonds, often issued for retail investors to encourage savings. They usually offer fixed interest and are held until maturity (no secondary trading).

How It Works

Purchased directly from the government or post office, they pay fixed or variable interest and often come with tax benefits.

Example

A 5-year National Savings Certificate with a 6.8% annual interest rate. The investor holds until maturity and receives compounded returns plus principal.

Used by: Retail investors seeking safe, long-term savings options.

Definition

Sovereign Green Bonds are government-issued bonds specifically designed to finance environmentally friendly projects, like renewable energy, climate resilience, or pollution control.

How It Works

Same mechanics as a regular bond (coupon + principal), but proceeds must be used for “green” projects. They attract ESG (Environmental, Social, Governance) focused investors.

Example

A government issues a 10-year Green Bond with a 3.5% coupon to fund solar energy projects. Coupons are paid semi-annually and the principal is repaid at maturity. The use of proceeds is verified for environmental impact.

Used by: Institutional investors with ESG mandates or sustainable investment strategies.