Government bonds are issued by national governments.
These government bonds are known as “sovereign” debt, and are backed by the ability of a nation to tax its citizens and to print currency.
All debt issued by governments is regarded as extremely safe, often referred to as “risk-free” securities, as is the debt of many stable countries.
The debt of developing countries, on the other hand, does usually carry substantial risk.
Like companies, countries can therefore default on payments.
Credit ratings agencies also rate a country’s risk to repay debt in a similar way that they issue ratings on corporate bond issuers.
Countries with greater default risk must issue bonds at higher interest rates – which essentially increases their cost of borrowing.
