treasury bonds definition

What Are Government Bonds?

Government bonds are debt securities issued by a national government to raise funds from the public and institutions. The government promises to repay the principal and pay interest at predetermined dates, leveraging its creditworthiness to secure funding. Government bonds are widely regarded as benchmark low-risk assets.

From the issuer's perspective, government bonds are released by the treasury department or its authorized agencies to finance infrastructure, public services, or refinance existing debt. By maturity, they are categorized into “short-term government bonds” and “medium- to long-term government bonds.” By interest structure, there are “coupon bonds” (paying regular interest) and “discount bonds” (sold below face value and redeemed at par upon maturity).

Why Are Government Bonds Considered Low-Risk Assets?

Government bonds are generally seen as low-risk because they are backed by a nation's taxation and governance capabilities, resulting in a low probability of default. However, they are not entirely risk-free.

The price of government bonds fluctuates with changes in interest rates: when market rates rise, older fixed-rate bonds become less attractive, causing their prices to fall; conversely, falling rates make existing bonds more valuable. There is also inflation risk, where changes in purchasing power can affect real returns. In addition, differences in creditworthiness and policies among countries introduce further variations in risk.

How Do Government Bonds Generate Returns?

Returns from government bonds come from two sources: regular interest payments (“coupons”), which function as the interest for lending money, and the difference between the purchase price and the face value at maturity, known as the “discount yield.”

For example, if you buy a discount bond for 97 units and redeem it at 100 units at maturity without interim interest payments, you earn a 3-unit profit. Coupon bonds, on the other hand, provide periodic interest payments and repay the principal at maturity. The actual investor return is also influenced by holding period and the reinvestment rate of received interest.

How Are Government Bonds Traded on the Secondary Market?

Once issued, government bonds enter the secondary market, where investors trade existing bonds. Prices fluctuate based on changes in interest rates, inflation expectations, and market supply and demand.

If the market expects future interest rates to fall, government bond prices typically rise; if rates are expected to increase, prices usually drop. Many individual investors do not directly trade single government bonds but participate through banks’ wealth management products, mutual funds, or brokerage platforms for more convenient transactions and better information disclosure.

What Do Government Bonds Look Like in Web3?

In Web3, government bonds often appear through “RWA tokenization,” meaning real-world assets are held off-chain while on-chain tokens represent proportional ownership. Investors can hold and transfer these tokenized shares using blockchain accounts.

This approach brings traditional low-risk yield opportunities on-chain, streamlining settlement and composability. Real-world implementation involves regulatory compliance, investor qualification, and KYC, along with transparent disclosure regarding underlying asset types, custodial arrangements, and yield distribution. In recent years, both the scale of on-chain government bond products and institutional participation have increased significantly, making them a major source of low-risk yield within Web3.

How Can Government Bonds Enhance Stablecoin and DeFi Yields?

Some stablecoin reserves or DeFi protocol treasuries allocate funds to short-term government bonds or similarly low-risk assets to generate steady interest income. These earnings are then distributed to token holders or strategy participants according to protocol rules.

Common practices include: investing protocol reserves in short-term government bonds to boost resilience against volatility; building on-chain investment products where users hold tokenized shares backed by government bond returns and receive dividends. It's important that the yield distribution path is transparent, that assets are properly custodied by compliant institutions, and that redemption rules are clearly defined—all critical for ensuring safety and liquidity.

How to Select Government Bond-Linked Wealth Management Products on Gate?

When choosing government bond-related wealth management products on Gate, focus on identifying the underlying assets, sources of yield, redemption terms, and matching your preferred currency and time horizon.

Step 1: Visit the Gate wealth management section, open the product details page, and review “underlying asset type, yield source, custody & compliance disclosures.” Products linked to government bonds or equivalent low-risk assets will typically state this explicitly.

Step 2: Pay attention to product duration and redemption mechanisms. Short-term products mirror short-term government bond yields; check if they allow instant or maturity-based redemption, as well as any fees and settlement times.

Step 3: Assess the denomination currency and foreign exchange risk. Most government bond products are denominated in USD; if you fund with other fiat or crypto assets, consider FX volatility and its effect on returns.

Step 4: Start with a small amount and set reminders. Test subscription, yield distribution, and redemption processes with a modest investment; set notifications for maturity or payout dates to reduce operational risk.

Risk Reminder: All investments carry the possibility of loss. Please read product disclosures carefully and invest according to your own risk tolerance.

What Are the Risks of Investing in Government Bonds?

Government bonds are subject to interest rate risk. When market rates rise, prices of existing fixed-rate bonds fall; when rates fall, bond prices rise. Price fluctuations during holding periods affect returns if selling before maturity.

There is also inflation and foreign exchange risk. Inflation erodes real purchasing power; if bonds are denominated in USD but eventually converted to another currency, FX movements impact actual returns.

Liquidity and redemption risks exist as well. Some products do not support instant redemption or may charge fees and have waiting periods—potentially limiting access to funds when needed.

Issuer credit and policy risks are present. A country's fiscal and political environment influences its credit standing; extreme cases may see defaults or payment delays.

In Web3, additional compliance and technical risks arise. RWA tokenization depends on both off-chain custody and on-chain smart contracts—insufficient disclosure, contract vulnerabilities, or regulatory shifts can all impact security and returns.

How Can Beginners Start Learning About Government Bonds?

Step 1: Grasp the fundamentals. Understand that government bonds are debt securities issued by nations; returns consist of coupon payments and discount yields; prices respond to changes in interest rates.

Step 2: Follow macroeconomic trends. Track central bank rate policies and inflation trends to see how they impact bond pricing and yields.

Step 3: Start with low-risk participation. Join through regulated funds or platform products to test subscription and redemption processes before increasing your allocation.

Step 4: Keep records and review regularly. Document purchase dates, holding periods, sources of returns, and fees; periodically review performance to refine your portfolio management and risk controls.

FAQ

Can You Withdraw From Government Bonds Anytime?

The flexibility of withdrawing from government bonds depends on how you purchased them. Direct purchases via banks or platforms like Gate typically have fixed terms (e.g., 3 months, 1 year, 10 years), with early withdrawals potentially incurring losses. However, you can sell them anytime on the secondary market—though prices fluctuate with changing interest rates. Beginners should understand product durations before deciding how much to invest.

What Is the Fundamental Difference Between Government Bonds and Stocks?

Government bonds represent loans you make to a government in exchange for periodic interest payments; stocks represent ownership in a company with potential dividends and capital appreciation. Government bonds carry lower risk and offer more stable returns; stocks have higher risk with less predictable gains. Beginners often use government bonds as a stable core holding while pursuing growth through stocks.

Can Ordinary People Really Buy Government Bonds?

Absolutely—individual investors can buy government bonds in most countries. Governments issue bonds accessible via banks, brokerages, or platforms like Gate. Minimum investment amounts are usually low—sometimes as little as 100 units of currency. Since product types and yields differ across platforms, compare offerings on reputable platforms like Gate before investing.

Why Do Government Bond Yields Change?

Yields on government bonds primarily reflect central bank policy rates. When central banks lower rates, new government bond yields decline; when they raise rates, yields rise. Existing bond prices also fluctuate—when market yields rise, older bond prices drop; when yields fall, older bond prices rise. This explains why returns from purchasing at different times may vary.

Who Are Government Bonds Suitable For?

Government bonds suit investors with low risk tolerance seeking stable returns—such as those nearing retirement, insurance funds, or institutional investors. For beginners, government bonds act as an “anchor” in an asset allocation strategy to balance out high-risk investments. On Gate’s platform, you can allocate idle funds into government bond products while diversifying with other asset types.