Treasury Bond

A government bond is debt issued by a state to borrow money. Backed by the government's promise to repay, it is treated as the safest asset within that country.

It serves as the reference point for rates. Corporate bond yields are set by adding a risk premium on top of the government yield, and mortgage rates follow it too — it is the starting line for all interest rates.

Safe does not mean the price is fixed. When market rates rise, existing bonds become less attractive and their prices fall. Holding to maturity returns the principal, but selling early can produce a loss.

Longer maturities move more. A thirty-year bond swings substantially on a one-point change in yields, while bills under a year barely respond at all.

That safety is why money floods into government bonds during crises. It is why their prices rise on days equities collapse, and why they belong in a diversified portfolio.