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Government bond

A Government bond is a debt instrument issued by the US Federal Government and backed by the full faith and credit of the US government.

Expanded Definition

The most common government bonds are Treasury Notes and Treasury Bills (T-Bills), but others include US Savings Bonds. These bonds are backed by the ability of Congress to tax and are as safe as the US government and/or the US Dollar.

Several additional classes of bonds issued by government agencies are less securely backed by the US government. It is presumed that the US government will support these issues if the need arises, but the promise is implied and would require action by Congress.

Interest on government bonds is usually subject to Federal income taxes but free of state and local income taxes. That compares with municipal bonds, usually issued by local government agencies, whose interest is free of Federal income taxes and may be free of state and local income taxes in the states and localities that issued them.

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