{"id":1779,"date":"2019-09-27T13:33:00","date_gmt":"2019-09-27T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1779"},"modified":"2025-05-20T06:53:45","modified_gmt":"2025-05-20T06:53:45","slug":"securities-issued-sovereign-governments","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/fixed-income\/securities-issued-sovereign-governments\/","title":{"rendered":"Securities Issued by Sovereign Governments"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Fixed-Income Markets: Issuance, Trading and Funding (2025 Level I CFA\u00ae Exam \u2013 Fixed Income\u2013Module 2)\",\n  \"description\": \"This video lesson covers the structure of global fixed-income markets for CFA Level I. It explains classifications, interbank offered rates, bond issuance methods, primary and secondary markets, government and corporate debt, structured products, short-term bank funding, and repurchase agreements along with their associated risks.\",\n  \"uploadDate\": \"2022-05-20T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/l7RAt_PtF9g\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=l7RAt_PtF9g\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/l7RAt_PtF9g\",\n  \"duration\": \"PT48M15S\"\n}\n<\/script>\n\n\n\n<p>[vsw id=&#8221;l7RAt_PtF9g&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;]<\/p>\n<p>National governments issue bonds primarily for fiscal reasons. As a result, sovereign bonds denominated in local currency have different names such as US Treasuries, Japanese government bonds, gilts in the UK, and Bunds in Germany.<\/p>\n<h2><strong>Treasury Securities<\/strong><\/h2>\n<p>US government bonds that mature in less than 1 year are called T-bills. T-bills are pure discount (zero-coupon) bonds as they are issued at a discount to par. In contrast, capital market bonds such as T-notes (maturity of one to 10 years) and T-bonds (10 to 30-year maturity) are typical coupon-bearing bonds.<\/p>\n<h2><strong>Sovereign Bonds<\/strong><\/h2>\n<p>Sovereign bonds are issued by a country\u2019s central government and&nbsp;are usually unsecured obligations as they are not secured by collateral. However, a high credit rating is still possible for sovereign bonds denominated in local currency. These securities can either be fixed-rate bonds (pure discount, no interest) or coupon-paying bonds (periodic interest plus principal payment at maturity). Fixed-rate bonds are exposed to more interest rate risk than coupon-paying bonds because investors cannot reinvest the coupon payments at a higher interest rate in case of a sudden increase in rates.<\/p>\n<p>The majority of trading in secondary markets is of sovereign bonds that were most recently issued. The most recently issued and most actively traded sovereign securities are referred to as <em><strong>on-the-run<\/strong><\/em>. Generally, as sovereign issues age, they tend to trade less frequently.<\/p>\n<h2><strong>Floating Rate Bonds<\/strong><\/h2>\n<p>Floating-rate bonds reset interest rates periodically based on a reference rate such as the LIBOR. Thus, interest rate risk is minimized. Many national governments also issue inflation-linked bonds \u2013 also called linkers \u2013 whose cash flows are adjusted for inflation. Examples of such bonds are the&nbsp; Treasury Inflation-Protected Securities (TIPS), whose cash flows are based on the consumer price index (CPI).<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>Most sovereign debts that have a maturity longer than one year are:<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Floating-rate instruments.<\/li>\n<li data-tadv-p=\"keep\">Zero-coupon instruments.<\/li>\n<li data-tadv-p=\"keep\">Coupon-bearing instruments.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>C<\/strong>.<\/p>\n<p>Most fixed income instruments issued by national governments and have a maturity longer than one year are coupon-bearing instruments with stated periodic interest payments.<\/p><\/blockquote>","protected":false},"excerpt":{"rendered":"<p>[vsw id=&#8221;l7RAt_PtF9g&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;] National governments issue bonds primarily for fiscal reasons. As a result, sovereign bonds denominated in local currency have different names such as US Treasuries, Japanese government bonds, gilts in the UK, and Bunds in&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[9],"tags":[],"class_list":["post-1779","post","type-post","status-publish","format-standard","hentry","category-fixed-income","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Securities Issued by Sovereign Governments | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn about sovereign bonds, including T-bills, notes, and benchmark bonds. 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