About Foreign Government Bonds

Foreign government bonds are those issued by treasuries of countries other than the United States. Many nations around the world sell bonds to raise money for their government, and these bonds are usually solid, no-risk investments. However the purchase of these bonds are often restricted to residents of the issuing country making it impossible for U.S. citizens to get in on the foreign government bond market.

Significance

Government bonds are issued by most capitalist countries including Canada, Great Britain, Japan France and Germany. The type of bonds vary from country-to-country, but most are identical to the U.S. Savings Bond, which pays a set interest rate until the bond reaches maturity. A foreign government bond is issued in the currency of the issuing country and is backed by the faith and resources of the issuing country.

Types

Bunds are government bonds issued by the finance agency of Germany, Gilts are issued by the United Kingdom's debt management office, BTPs are issued by the finance department of the Italian government, OATs are bonds issued by the French Debt Agency. Government bonds are also issued by finance departments in Japan and Canada.
The terms of the bonds vary from county-to-country, but most are available in short-term forms (up to five or six years) or longer range forms of 15 or more years.

Misconceptions

While foreign government bonds are a stable investment, they are a market that is quite often off limits to U.S. investors. Foreign countries restrict the sale of government bonds to residents only, and all bonds must be registered in the name of a citizen of that country. This policy is similar to that of the U.S. government, which limits saving bond sales to its citizens.
U.S. investors can purchase non-government bonds, which are issued by private agencies in a foreign country.

Benefits

For citizens of foreign countries, government bonds offer a no-risk investment backed by the faith of their country's government. Foreign government bonds eliminate the risks of other forms of investing, such as stocks, which are heavily effected by uncertainty of foreign markets.
For U.S. investors, investing in non-government foreign bonds carries several risks not present in domestic investing, including the fluctuation of foreign currencies, and provides little or no benefits.

History

Governments have used bonds to raise money since the 16th century, but the first traditional foreign government bond was sold in 1693 when the British government sold a tontine to finance a war against France. In Canada, bonds were sold to raise money during World War II, and the provincial government of Ontario has also sold bonds to raise money for its treasury.