Understanding Government Bonds: A Safe Asset for Mindful Investors

When deposit interest rates are left with only a fraction, seeking new investment channels becomes a necessity. One of the options to consider is Government Bonds, which are financial instruments that provide long-term security and stability.

Government Bonds: National Debt Securities

(Government Bonds) are not mysterious; they are simply debt securities issued by the government or state enterprises to raise funds for various purposes such as infrastructure development, repaying old debt, or funding government expenditures.

When you purchase bonds, you are lending money to the government, which will compensate you with interest or returns as agreed. The issuer of bonds (in this case is the government), which has strong enforcement authority and a solid tax base, making government bonds low-risk assets.

How Government Bonds Work and Their Structure

A simple way to invest in government bonds is: Buy → Hold until maturity → Receive principal plus interest.

Government bonds are sold with a minimum denomination of 1,000 Baht, and you can purchase in multiples of 1,000 Baht (such as 5,000 Baht, 15,000 Baht, etc.), with no maximum limit.

Investment durations vary, generally 1 year, 3 years, 5 years, or 7 years. Some countries may have longer terms; for example, the United States offers long-term bonds of 10-30 years.

Types of Government Bonds

Government bonds are not limited to a single form. For example, in the United States, they are categorized as follows:

Treasury bills (T-bills): Short-term bonds with less than one year to maturity, offering discounted returns from the face value.

Treasury notes: Have maturities of 2, 3, 5, or 10 years, providing fixed interest payments based on the coupon rate.

Treasury bonds: Long-term bonds with 20 or 30-year maturities, paying fixed interest periodically.

Treasury Inflation-Protected Securities (TIPS): Special bonds that adjust the principal (principal) according to inflation rates to prevent loss of value due to inflation.

Advantages and Disadvantages of Investing in Government Bonds

Advantages

Low risk: Supported by the financial stability and enforcement power of the government, making them safer compared to other securities.

Predictable income: Fixed interest from the purchase date, with no surprises, suitable for those seeking steady cash flow.

Flexibility: Bonds available in various durations, allowing investors to choose according to their financial plans.

Ease of management: No complex monitoring or daily decision-making required.

Disadvantages

Lower returns: The interest earned is not high, especially in a low-interest-rate environment.

No growth potential: Limited capacity for high short-term returns.

Policy risk: Rapid increases in central bank interest rates can decrease the value of your held bonds.

Global financial risk: In uncertain global economic conditions, bond prices may fluctuate.

Factors Affecting Government Bond Prices

The price of government bonds is not fixed. If sold on the secondary market, prices change based on various factors:

Basic interest rates: When the central bank raises interest rates, existing bonds with lower interest rates become less attractive, causing their prices to fall. Conversely, bond prices increase when rates decrease.

Economic conditions: During a strong economy, investors may seek higher returns from other assets, reducing bond prices. During a recession, bonds become safe havens, increasing their prices.

Central bank monetary policy: Announcements or expectations about future policies influence investor sentiment.

Global market conditions: International economic conflicts, financial crises, or unforeseen events impact interest rates and bond demand.

How to Buy and Sell Government Bonds

If you decide to invest in government bonds, here are the methods:

1. Primary Market (Primary Market)

This is the direct purchase channel from the government, through GSB Bank or authorized commercial banks. You need to follow announcements about new bond issuance and express interest during specified periods.

2. Secondary Market (Secondary Market)

For those wanting to buy already issued bonds, you can trade via:

• Direct peer-to-peer transactions (if you know the seller)
• Using broker services to search and negotiate

3. Bond Mutual Funds

If you prefer fund managers to handle investments, you can buy units of bond mutual funds through securities accounts or banks. This method is convenient but involves additional fees.

Yield and Its Significance for Government Bonds

The (Yield) of government bonds is a key indicator for investors. Especially, the 10-year bond yield is closely monitored as it reflects market confidence and future inflation expectations.

When yields rise, it indicates the market expects higher interest rates or concerns about currency value. When yields fall, it suggests the economy may slow down or that interest rate cuts are anticipated.

Summary: Who Should Consider Government Bonds?

Government bonds are suitable assets for investors who are:

• Seeking safe, low-risk investments
• Having sufficient funds to lock in for a long period
• Not in urgent need of high short-term returns
• Looking to diversify (diversification) in their investment portfolio
• Planning for future savings

Although returns are modest, the security and predictability of income make government bonds a worthwhile consideration as part of a responsible wealth management strategy.