36. The government bond markets: size, composition, significance. Рынки правительственных облигаций: размер, состав, значение.

A government bond market is a bond market where the debt issuers are governments. A government bond is a bond issued by a national government, generally promising to pay a certain amount (the face value) on a certain date, as well as periodic interest payments. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country. Government bonds are usually denominated in the country's own currency. Bonds issued by national governments in foreign currencies - sovereign bonds.

As of 2011 total size of bond market=$82trln, 44% of which are of US origin, of which $24trln – government bonds – the largest group of bonds, followed by the mortgage-related.

Governments often find their spending requirements exceed their tax revenues. To make up this difference, they need to borrow by issuing bonds. Hence, borrowing is essential for the economies to prosper. By issuing government bonds, state bodies are able to finance socially important projects, e. g. infrastructure, education, medical care and so on. Besides, due to the time value of money, serving the debt is cheaper, than paying out of the treasury.

However, countries should be aware of possibility of finding themselves in a debtor’s prison. It has never been an issue until these days, as both USA and EU came across this problem. For the USA it is not an issue, as it has a powerful tool – USD. The one of the EU is often referred to as the European sovereign-debt crisis - an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties. Now some of those countries cannot re-pay not only the face value, but even the interest accrued.

It resulted from a combination of complex factors, including the globalisation of finance; easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices; the 2007–2012 global financial crisis; international trade imbalances; real-estate bubbles that have since burst; the 2008–2012 global recession; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries. The solution to cut budgets is not working for such countries anymore. The considered ways out – to be expelled from the Eurozone and with devaluated national currency (cheap g&s-s) their economies will recover; another way – to keep asking for the IMF’s bailouts.

NB! Through issue of T-bonds and T-notes, Fed Reserve conduct monetary policy as most of government debt (except for China and Japan) is owned by US banks and holds in Virginian islands(open market operations). More T-notes on their balance sheet => less liquidity in the economy and vice versa. That trick works everywhere. Besides governmental bonds are used as risk-free assets.