Bonds are security debts that are issued by a borrower to a lender for the purpose of paying back the debt with interest. Government bonds are federally incurred debts issued to lenders that are backed by the United States Treasury.

Loans

When broken down to its basic meaning, a bond is nothing more than a loan. What separates a bond from a regular loan in this case is the fact that the government issues the bond and many people consider the government to be a low-risk investment.

Purpose

The government borrows money to operate the federal government and to help account for the current debt. One of the ways in which the government funds programs and carries out its duties for the citizens of this country is with the use of bonds.

Features

Each government bond has a term limit and when it matures (or the time expires), the government pays back the lender. The bond normally pays interest during the time period before it matures. The rates are low because of the governments credibility.

Types

The three types of government bonds are defined by their maturity terms. Treasury bills (T-bills) are debt securities that mature in one year or less. Treasury notes mature in one to 10 years. Treasury bonds normally take 10 or more years to mature.

Investors

Since the United States Treasury backs treasury bonds, many people in the United States and foreigners invest in them. The U.S. Treasury makes it a point to pay back all of its debts when they're due, and the chances of this institution defaulting on a loan is generally considered minimal.

Source:

The US Department of the Treasury

Bureau of the Public Debt

Investopedia