What defines a government bond?

A government bond is fundamentally defined as a commitment by a government to repay borrowed money with interest. When governments need to raise funds for various projects, programs, or to cover budget deficits, they issue bonds as a means of borrowing money from investors. When you purchase a government bond, you are essentially lending money to the government, which, in return, agrees to pay you periodic interest payments and return your principal investment at a specified maturity date.

This characteristic of government bonds allows them to be considered a low-risk investment, particularly in stable economies, because they are backed by the government's ability to levy taxes and generate revenue. The predictability of interest payments and the return of the principal amount makes them attractive to risk-averse investors.

In contrast, corporate bonds involve a promise from a corporation to repay its shareholders, which does not capture the essence of what a government bond is. Similarly, investments backed by real estate assets or financial instruments exclusive to foreign investors do not align with the definition of a government bond. Therefore, the commitment by a government to repay borrowed money with interest precisely encapsulates what a government bond is.