Government Bonds: A Stable Asset for Cautious Investors

Understanding Government Bonds from the Basics

(Government Bond) is an investment tool issued by the government or state agencies to borrow money from investors. The government promises to repay the principal along with interest at the agreed rate (Bond Yield) when the maturity date arrives.

In other words, if you purchase a government bond, you become a creditor to the government, and the government is the borrower. The government issues bonds to raise funds for various projects such as infrastructure development, education, or national debt repayment.

Why Investors Are Turning to Government Bonds

During periods when bank deposit interest rates are low, many investors start looking for alternative ways to make their money work. Government bonds thus become an increasingly attractive option for investors.

The main reasons attracting investors to government bonds are safety and credibility because the government guarantees the repayment, making it a lower-risk investment compared to other assets.

How Government Bonds Work in Practice

The investment process is quite simple. The general steps are:

1. Purchase Bonds: You buy government bonds from a bank. The minimum is 1,000 baht (1 unit), and you can buy in multiples of 1,000 baht, such as 2,000 baht, 50,000 baht, or more. There is no maximum limit.

2. Hold Until Maturity: You hold the bond for the period specified in the contract, which could be 1 year, 3 years, 5 years, 7 years, or longer. During this time, you receive interest periodically.

3. Receive the Principal: When the bond matures, the government returns your principal along with the remaining interest.

Types of Government Bonds

In the United States, which has the largest bond market in the world, government bonds are also called Treasury securities, divided into categories based on maturity:

Treasury Bills (Short-term Treasury Bills)

• Maturity up to 1 year
• Suitable for investors seeking liquidity

Treasury Notes (Medium-term Treasury Notes)

• Maturity of 2, 3, 5, or 10 years
• Pays fixed interest at the rate specified in the security
• Most popular among general investors

Treasury Bonds (Long-term Bonds)

• Maturity of 20, 30 years or longer
• Offer higher returns than other types but have higher interest rate risk

Treasury Inflation-Protected Securities (TIPS)

• Bonds that adjust in value according to inflation
• Suitable for investors concerned about purchasing power

Advantages of Government Bonds for Investors

1. Highest Security
Government bonds are considered the safest securities in the market because the repayment is backed by the government, which has the power to tax and print money.

2. Stable and Predictable Income
Interest from government bonds is fixed and agreed upon at purchase, allowing investors to forecast future income accurately.

3. Flexibility in Maturity Choices
Available in various durations from a few months to over ten years, enabling investors to plan according to their goals.

4. Good Liquidity
Especially in developed countries, government bonds have a large secondary market, allowing investors to sell before maturity if needed.

Disadvantages to Consider

1. Relatively Low Returns
Due to safety, interest rates on government bonds are lower than riskier securities. Sometimes, returns may even be below inflation.

2. Interest Rate Risk
When market interest rates rise, the prices of existing bonds fall. Selling before maturity could result in a loss.

3. Impact of Monetary Policy
Changes in central bank policies can significantly affect bond prices and yields.

Factors Affecting Government Bond Prices

Baseline Interest Rates
An increase in interest rates causes existing bond prices to fall because new bonds offer better yields.

Economic Conditions
During crises or uncertain economic times, investors seek “safe havens” (Safe Haven), including government bonds, which can drive prices up.

Central Bank Policies
Central banks often buy large quantities of bonds. Changes in policies like Quantitative Easing (QE) or interest rate adjustments directly impact the market.

International Economic Conditions
Factors such as geopolitical tensions or global economic crises can lead to capital inflows or outflows from government bonds.

How to Buy Government Bonds

( Method 1: Primary Market Purchase

This involves buying bonds directly from the government through authorized banks, such as Government Savings Bank or commercial banks acting as agents.

Advantages:

• Purchase directly, no middlemen involved
• Hold until maturity with clear pricing

Disadvantages:

• Need to monitor government bond issuance news
• Sales close once the issuance period ends

) Method 2: Secondary Market Purchase

This involves buying and selling bonds that have already been issued in the secondary market. There are two ways:

a. Direct Trading
Investors contact each other directly ###Less common due to difficulty and higher risk###

b. Through Bond Brokers
You can contact securities firms that act as bond trading agents. They assist investors in finding buying and selling opportunities in the secondary market.

( Method 3: Through Bond Mutual Funds

For those who prefer professional management, choose bond mutual funds aligned with your objectives, and purchase through securities companies or banks that distribute them.

Advantages:

• Managed by experts
• Multiple options available
• Can start with small amounts

Value of Government Bonds and Their Relationship with Stocks and Currencies

Returns on government bonds )especially long-term bonds### are key indicators of market confidence and are linked to currency prices.

For example, the yield on 10-year US Treasury bonds is closely watched worldwide. When yields rise, it indicates that:

• Investors demand higher returns (expect economic growth or higher inflation)
• The US dollar tends to strengthen

When yields fall, it indicates that:

• Investors seek “safe assets” (lower yields)
• The US dollar tends to weaken

Who Should Consider Investing in Government Bonds

Risk-averse individuals seeking low-risk, stable income investments find government bonds suitable.

Retirees and seniors needing income from fixed contracts often include government bonds in their portfolios.

Investors balancing their portfolios use government bonds to reduce volatility and as a financial ballast (Ballast).

Long-term investors planning to accumulate funds for future goals such as retirement or children’s education.

Summary

Government bonds address the question of “safe but low return.” This is a characteristic of government bonds, not a flaw, but a trade-off that should be understood.

For most investors, government bonds should be part of a diversified portfolio, even if not the main component. They help stabilize the portfolio and allow you to sleep peacefully during stock market turbulence.

Deciding to invest in government bonds should be based on your investment objectives, risk tolerance, and investment horizon. There is no “good” or “bad” investment option—only what suits you best.