Page 204 - A Canuck's Guide to Financial Literacy 2020

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Government Bonds

Government bonds are fixed income securities issued by a government to support their
spending and monetary policies. These bonds pay periodic interest payments known as
coupons in addition to the principal upon maturity of the bond. Government bonds are
categorized as low risk investments as the likelihood of default on payment by the
government is very low. Government bonds are also known as sovereign bonds.

Bond Ratings

Throughout the year, the government would hold auctions in order to sell their bonds. The
creditworthy of a government would determine the success of their auctions. Various
international credit rating agencies will provide ratings about each country. Ratings act like a
credit score and bonds with AAA rating are usually considered safe.

Open Market Operations

Through the usage of government bonds and other securities, the government is able to
manage their monetary policy. This is known as open market operations, a commonly used
tool by government bodies around the world. Through open market operations, the
government would buy or sell securities in order to influence money supply, level of interest
rates and the behavior of the overall economy.