When investing in government bonds, the characteristics they have must be taken into account. It is a type of state investment, so as they are financial assets, they are influenced by the market. GWG Bond payments might have defaulted and thus people have lost their trust in these. Don’t worry, Government bonds are much safer compared to others. You should know the characteristics of these government bonds in detail. We have tried out this further in this article.
Government Bond Prices
The main thing that you will have to take into consideration when buying government bonds is their price. As with other types of financial assets, the prices of government bonds are determined by supply and demand. What does this mean? Well, the Government is the one who sets how many State bonds it is going to issue, depending on the debt that it must cover. In fact, in most cases, more government bonds than necessary are issued. For its part, the demand depends on whether or not the investor considers the investment attractive, he will also have to take into account the interest rate that he will receive for investing in government bonds.
Demand varies depending on interest
The interest rate set for the State bond also depends on the demand that may exist. And it is that the higher the risk of investing in said debt, the higher the interest rate offered to investors to acquire it. If interest rates are lower than the coupon on a bond, demand for that bond will increase and it represents a better investment. But if interest rates rise above the coupon rate, demand will fall. Currently, the nominal rates of Treasury bill securities are between 0.40% and 0.57%, while in the case of government bonds, interest rates are around 0.19% and 0.43%.
The prices of the State bonds that have been issued are calculated based on the interest rates that are in force and are negotiated around their nominal value. When the bond reaches its maturity date, the initial investment is returned. In addition, the number of interest payments that must be made before the maturity of the bond will also have a certain impact on the price.
These types of investments are considered low risk. The reason is simple, the chances that the Government will default on its payments is low. It is also possible that a higher risk bond such as GWG L Bonds, will trade at lower amounts than one of lower risk and similar interest.
So, if you want to invest your savings, you have several options, one of them is to do it in a bank deposit and another in bonds and government bills. And it is that these are precisely assets that allow the investor to know in advance the profitability that he is going to obtain when investing and the term in which he is going to recover the investment. Security goes hand in hand with this type of investment.