Investing in Government Bonds
When governments want to borrow money from the capital markets, they issue bonds, also called government debt. These are IOUs from the government to the market: the government promises to pay those investing in bonds their full principal, in addition to a rate of interest on the bond that is determined when it is auctioned, e.g. 5.5%.
Some of the most widely traded government bonds are:
German government bonds are called Euro Schatz (short term two year bonds), Euro Bobl (five year bonds), and Euro Bunds (bonds from nine years all the way out to 30). Some spread betting companies will quote prices on shorter term bonds from other countries, for instance two year and five year notes. Governments are in the habit of issuing short term debt because some of their costs are short term in nature, too.
When trading bond markets as a customer of a spread betting or CFD trading company, remember that you are trading the price of the bond, you are not investing in the bond itself. Nobody will pay you the value of the bond when it reaches maturity, or any interest payments. As a CFD trader or spread bettor, you are focusing on the price only.
Bond traders focus on statistics like inflation, unemployment and budget statements to try to gauge the financial health of governments, and how much they are likely to borrow in the future. In effect, they are almost treating a country like a company. Tax rates and statements of economic growth (or shrinkage) can move bond markets quickly.