When you need to make investments, you need to ascertain your disposable income and the objectives which the investment shall meet. One of the foremost considerations of making the investment decision is the extent of risk which you are willing to take. The more the risk, the more are the rewards in terms of the return on investments. However, even the people who are risk-takers first find out the safest avenues of investments and then play the high risk games. And, government treasury bonds are one of the foremost attractions for the same.
Government treasury bonds are the debt instruments which are launched by the governments for capital accumulation. These carry a fixed bond rate, which is the amount of return which the holder of the instrument is likely to get. Since these are initiated by the governments, these are backed by the sovereign guarantees from the government that the investments will remain safe and that the returns will be given for sure. Some countries provide total guarantees while some other might incorporate a little element of market risk, say 5 percent on these instruments.
Some of the financial planners and investors are averse to make use of these instruments in times of high inflation. This is so because even if the full backing of the government is there, the fixed returns do not match with the increasing inflation rates and the investors are at a disadvantage. However, mindful of the fact that inflation can erode the real value of the return, the governments introduce the inflation indexed treasury bonds whose rate of return is pegged to the inflation index.
The key difference between the inflation indexed treasury bonds and the normal ones is that the real value of the latter gets eroded with high inflation whereas the real values of the former remains the same. Ever since the indexed bonds were first introduced, these have found phenomenal rise in investments. However, it shall be noted that these bonds provide the cover against the inflation rate increase while there might still be the fluctuations in the real interest rates which might impact the current yield curve.
One of the benefits afforded by these instruments is that the needs of the small investors taken care of. When these instruments were not there, the investors always found themselves in a dilemma since there were not other risk-free avenues and if the government treasury bonds provided a way out, the erosion of real returns rendered the investments useless. These instruments are chiefly used by the economies of those countries which face high inflation rates and these are not likely to be stable for long term.
These are different from the bank bills which are short term secure investment avenues, usually less than 185 days whereas the treasury bonds are long term in nature. Bank bills do not carry a fixed rate from the beginning. Rather it is the deal rate which is held to be fixed right till the rest of the term of the bank bill. So, bank bills definition is different from that of the treasury bonds.
Government treasury bonds are the debt instruments which are launched by the governments for capital accumulation. These carry a fixed bond rate, which is the amount of return which the holder of the instrument is likely to get. Since these are initiated by the governments, these are backed by the sovereign guarantees from the government that the investments will remain safe and that the returns will be given for sure. Some countries provide total guarantees while some other might incorporate a little element of market risk, say 5 percent on these instruments.
Some of the financial planners and investors are averse to make use of these instruments in times of high inflation. This is so because even if the full backing of the government is there, the fixed returns do not match with the increasing inflation rates and the investors are at a disadvantage. However, mindful of the fact that inflation can erode the real value of the return, the governments introduce the inflation indexed treasury bonds whose rate of return is pegged to the inflation index.
These are different from the bank bills which are short term secure investment avenues, usually less than 185 days whereas the treasury bonds are long term in nature. Bank bills do not carry a fixed rate from the beginning. Rather it is the deal rate which is held to be fixed right till the rest of the term of the bank bill. So, bank bills definition is different from that of the treasury bonds.
