ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

See All

Finance: What are Government Bonds? 52 Views

Share It!

Description:

What are government bonds? Uncle Sam needs dough. He sells bonds in the form of T-Bills, T-Notes, Treasury paper of all flavors. His credo? The credit of those bonds is backed by his ability to tax his hard-working citizens.

Language:

English Language

Transcript

00:00
finance a la shmoop. what are government bonds?
00:05
now we're gonna narrow this question a bit and declare these bonds to be US [hands shape the question]
00:09
government bonds. our answer would be a tad different if we were discussing
00:12
bonds backed by North Korea Nigeria or Egypt so US government bonds come in a
00:19
few flavours. generally speaking they range in duration that is how long it

00:24
takes for them to mature and the principal get paid off. short-term US
00:28
government paper it's a fancy term for a bond ,refers to things that come due in a
00:33
year or less. that's short-term. year or less. and then there are Treasury bills
00:37
which come in a variety of durations and our price like this note how different
00:42
these look versus just you know buying a bond .but when you buy a bond it has a [chart shows prices]
00:46
face amount of say a thousand bucks for what is called its par value. that piece
00:52
of paper might agree that clown shoes incorporated which is where most
00:57
congressmen get their Footwear of course, will pay 30 bucks twice a year to the
01:02
holder for 10 years, and then pay back the original thousand bucks invested
01:06
it's like a normal vanilla bond, the interest rate here in this case is 6%
01:11
per year, but many US government notes are sold at auction which means they
01:15
sell at a discount to their par value. well regardless of how they're sold US [auction with a clown in attendance]
01:20
government bonds are backed by what is generally perceived in the world as the
01:24
most certain or secure financial backing. even more powerful than Google .if sorry
01:30
Larry and Sergey we're just keeping it real. the bonds are backed specifically
01:33
by the US government's right to tax its citizens. and oh they tax us. do they ever.
01:38
so now you can stop wondering about that bottomless hole a third or more of every
01:43
paycheck vanishes into. [portion of paycheck flies down dark hole in the ground]
Full Transcript