Government Bonds Vs.

Corporate Bonds
 What is ‘Bond’ ?

A bond is a fixed income instrument that represents a

loan made by an investor to a borrower. A bond could be
thought of as an I.O.U. between the lender and borrower
that includes the details of the loan and its payments.
 Government Bonds
• A government bond is a debt security issued by a government
to support government spending and obligations.
• Government bonds can pay periodic interest payments called
coupon payments.
• Government bonds may also be known as Sovereign debt.
 The Uses Of Government Bonds

Government bonds assist in funding deficits in the federal budget

and are used to raise capital for various projects such as
infrastructure spending.

However, government bonds are also used by the Federal Reserve

Bank to control the nation's money supply.
‘Pros’ And ‘Cons’ Of Government Bonds

Pros
• Pay a steady interest income
return.
• A liquid market for reselling.
• Default and other risks on
foreign bonds.
Cons
• Offer low rates of return.
• Carry risk when market
interest rates increase.
• Default and other risks on
foreign bonds.
 Corporate bonds

A corporate bond is a type of debt security that is issued by a firm

and sold to investors. The company gets the capital it needs and
in return the investor is paid a pre-established number of interest
payments at either a fixed or variable interest rate.
 ‘Pros’ And ‘Cons’ Of Corporate Bonds
Pros
• Wide universe of corporate issuers
and bonds to choose from.
• Tend to be less risky and less volatile
than stocks.
• The corporate bond market is among
the most liquid and active in the
world.
Cons
• Many corporate bonds must be
purchased OTC.
• Lower risk translates to lower return,
on average.
• Corporate bonds expose to investors
to both credit (default) risk as well as
interest rate risk.
Thank You