A government bond is a debt security a government issues.When a government issues a bond, it is basically accepting a loan. The lender receives interest payments, plus his principal back when the bond matures. If an investor buys a government bond for $1,000 with a 5% interest rate, he will receive $50 every year until it matures, and then his original $1,000 back. The government uses the money it borrows through bonds to fund activities or projects, like repairs on an interstate highway. Examples of government bonds in the United States include savings bonds, Treasury bonds, and Treasury inflation-protected securities (TIPS). There are many more. Corporations issue bonds to pay for projects, as well, but governments are the largest issuers of debt securities, and deemed the safest. Since government bonds in the U.S. are backed by the full faith of the federal government, the chances that they will default are tiny. But it’s important to remember that low risk means lower returns, and borrowers of a government bond will typically receive smaller interest rates than what they would receive for a corporate bond, which has a higher risk of default. Investors should assess the risk of a government bond as it applies to the specific country issuing the debt. There is country risk, or the combination of risk stemming from political, exchange rate, economic, sovereign and transfer issues. These may be minimal in the U.S., but considerable elsewhere.