Tutorial: Government Bonds International


What are international government bonds?

International government bonds are mostly fixed-rate debentures issued by public corporations of a state in order to finance infrastructure projects and other tasks of the community. Therefore the maturities of international government bonds are medium to long term. Depending on the rating of the respective country, these bonds are considered a safe investment, because the redemption is guaranteed by a steady flow of tax income. Given the high degree of safety, the interest rate is moderate. But you have to bear in mind: the higher the interest rate paid, the higher the potential risk of default.

How do international government bonds work?

You buy an international government bond at its issue price as security with fixed or floating interest rate. The interest (coupon) is paid annually. At the end of maturity the bond is redeemed in full. Your advantage as investor: you know right from the start what amount you will receive at the end of the term.

If you buy government bonds in foreign currencies, i.e. so-called foreign bonds, you should take the currency risk into consideration.

Your benefits

International government bonds are suitable as long-term investment. They are strongly secured, which is why conservative investors will find them particularly useful: they offer solid investment opportunities with transparent and predictable chances of making a profit.

Your advantages

  • You benefit from attractive interest payments throughout the entire term of the bond. The amounts and the payment dates are fixed in advance.
  • You enjoy a very high degree of safety.

Details you should be aware of

  • Between issue date and maturity, price fluctuations are possible, which means that the sale of the bond prior to maturity may result in a loss.
  • The 100% capital redemption only applies to the end of maturity.
  • The currency risk may result in losses in interest and redemption

How do international government bonds react to…

… rising interest rates?
Older government bonds with lower interest rates fall when interest rates are generally rising. If you sell your bonds prior to maturity, you may record a loss.

… stable interest rates?
In the case of stable interest rates, the price of government bonds does not change.

… falling interest rates?
Older government bonds with higher interest rates increase when interest rates are generally falling. If you sell your bonds prior to maturity, you may record a profit.