The national government issues different types of government bonds for a specific and pre-defined period of time. These bonds are dominated by the currency of a particular country. These types of government bonds can function both as a loan or an investment.
There are three common types of government bonds. These are treasury securities or Treasury bond, municipal bonds and zero coupon treasury bond.
Treasury Securities bond
Treasury security bond has been subdivided in three main types. The three main are Treasury bond, Treasury note and Treasury bill. They are briefly explained below.
The other name for Treasury bond is T-bond. These are types of government bond that mature in more than ten years. The bond holder is entitled to a semiannual interest payment. Treasury bill is also known as T-bill. This is a short term instrument of debt that mature in one or less than year. It can take approximately 13 weeks, 26 weeks or 52 week from the date the debt was issued.
Municipal bond is one of the types of government bond that is issued with a local government, city or a state. The main purpose of the municipal bond is to generate money for daily operation. In addition, these types of government bond help to fund the municipal projects such as the development of infrastructures in the local government.
The two types of municipal bond are revenue bonds and taxed-backed bonds. Revenue bonds are issued by the municipality to fund public work such construction of roads, bridges and sewer systems. Revenue bonds include college and university bonds, airport revenue bond, student loan revenue bond, resource recovery revenue bonds, water revenue bonds, seaport revenue bond, public power revenue bonds and hospital revenue bonds. On the other hand, the towns, cities, states and countries that are secured by the tax revenue issue the taxed-backed bonds.
Structured or asset-backed securities, bank-backed municipal bond, insured bond and refunded bond are other types of municipal bond.
Zero Coupon Treasury bond
Zero coupon treasury bond is a type of government bond that is also known as discount bond since it is bought at a lower price than its original value. The objective of this type of government bond is to provide opportunity to the investors who want their money to grow until a specified future date. The Zero coupon treasury bond has no periodic interest payment. The interest earned by the investors is via the difference between the discounted prices of the bond and redemption value.
Some examples of zero coupon treasury bond are treasury bills, long term zero coupon bonds and U.S. saving bond. The maturity of the long term zero coupon treasury starts from ten to fifteen years after the issued date. In contrary, the maturity of short zero coupon bond takes less than one year and they are also known as bills. The most active and liquid debt market in the world is U.S. Treasury bill. The zero coupon treasury bonds are types of government bonds that do not make recurring interest payment.