Do governments support their own bonds when their value goes down?
Companies do not support their stock. Once the security is out on the wild (market), its price fluctuates according to what investors think they are worth. Support is a whole different concept, financially speaking: Support or support level refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock. So it is the lowest assumed price for that stock. Once it reaches its price, buyers will rush to the stock, raising its price. The company wants to keep the stock price at acceptable levels, as it can be seen as the general view of the company's health. Also several employees/executives in the company have stock or stock options, so it is in their interest to keep their stock price up. A bond that goes down in value may indicate a believe the bond issuer (government in this case) won't honor the bond when it matures. As for bonds, there is a wealth of reading in this site: Can someone explain how government bonds work? Who sets the prices on government bonds?  Basic understanding of bonds, values, rates and yields who issued stock typically support it when the stock price go down.  No, not many company do that as it is uneconomical for them to do so. Money used up in buying back equity is a wasteful use of a firm's capital, unless it is doing a buyback to return money to shareholders. Does the same thing happen with government bonds?  Not necessarily again here. Bond trading is very different from equities trading. There are conditions specified in the offer document on when an issuer can recall bonds(to jack up the price of an oversold bond), even government bonds have them.  The actions of the government has a bigger ripple effect as compared to a firm. The government can start buying back bonds to increase it's price, but it will stoke inflation because of the increase in the supply of money in the market, which may or mayn't be desirable. Then again people holding the bond would have to incentivized to sell the bond. Even during the Greek fiasco, the Greek government wasn't buying Greek bonds as it had no capital to buy. Printing more euros wasn't an option as no assets to back the newly printed money and the ECB would have stopped them from being accepted.  And generally buying back isn't useful, because they have to return the principal(which might run into billions, invested in long term projects by the government and cannot be liquidated immediately) while servicing a bond is cheaper and investing the proceeds from the bond sale is more useful while being invested in long term projects. The government can just roll over the bonds with a new issue and refrain from returning the capital till it is in a position to do so. Without getting to hung-up on terminology here, the management of a company will often attempt to keep stock prices high because of a number of reasons: Ideally companies keep prices up through performance.  In some cases, you'll see companies do other things spending cash and/or issuing bonds to continue to pay dividends (e.g. IBM), or spending cash and/or issuing bonds to pay for stock buybacks (e.g. IBM).  These methods can work for a time but are not sustainable and will often be seen as acts of desperation.  Companies that have a solid plan for growth will typically not do much of anything to directly change stock prices. Bonds are a bit different because they have a fairly straight-forward valuation model based on the fact that they pay out a fixed amount per month.  The two main reason prices in bonds go down are: The key here is that bonds pay out the same thing per month regardless of their price or the price of other bonds available.  Most stocks do not pay any dividend and for much of those that do, the main factor as to whether you make or lose money on them is the stock price. The price of bonds does matter to governments, however.  Let's say a country successfully issued some 10 year bonds last year at the price of 1000.  They pay 1% per month (to keep the math simple.)  Every month, they pay out $10 per bond.  Then some (stupid) politicians start threatening to default on bond payments.  The bond market freaks and people start trying to unload these bonds as fast as they can.  The going price drops to $500.  Next month, the payments are the same.  The coupon rate on the bonds has not changed at all.  I'm oversimplifying here but this is the core of how bond prices work. You might be tempted to think that doesn't matter to the country but it does.  Now, this same country wants to issue some more bonds.  It wants to get that 1% rate again but it can't.  Why would anyone pay $1000 for a 1% (per month) bond when they can get the exact same bond with (basically) the same risks for $500?  Instead they have to offer a 2% (per month) rate in order to match the market price. A government (or company) could in fact put money into the bond market to bolster the price of it's bonds (i.e. keep the rates down.)  The problem is that if you are issuing bonds, it's generally (caveats apply) because you need cash that you don't have so what money are you going to use to buy these bonds?  Or in other words, it doesn't make sense to issue bonds and then simply plow the cash gained from that issuance back into the same bonds you are issuing.  The options here are a bit more limited.  I have to mention though that the US government (via a quasi-governmental entity) did actually buy it's own bonds.  This policy of Quantitative Easing (QE) was done for more complicated reasons than simply keeping the price of bonds up.
Sure thing -  Treasuries Bonds/Bills are what the US Gov uses to borrow. However it's slightly different than taking out a loan. It's basically an agreement to give (repay) a set sum of money at a certain time in the future in exchange for a sum of funding that's determined by market forces (supply &amp; demand). The difference between today's price and the payment in the future is the interest.   For example (completely made up numbers):  - Today is 08/05/2017 - The government issues a bond that say it will pay who ever owns this bond $105 on 08/05/**2018** - The market decides that $105 from the US government paid a year from now is worth $100 today.   In other words the US Government is borrowing for one year at a rate of 5%       (105 - 100) / 100 = .05 = 5%  Now consider Saudi Arabia's petroleum company, Aramco.  Because petroleum is traded in dollars, when Aramco makes a sale, its paid in USD. Some of that is going to be reinvested into the company, some paid out in dividends to share holders but inevitably some of that will be saved someplace where it can make interest. Because treasuries are traded/issued in dollars and because Aramco's businesses deals primarily in dollars, treasuries are the natural place to store that savings, especially because the market considers them extremely safe.   If they exchange the USD into the Saudi currency to store the money in Saudi assets, Aramco is subject to  *exchange rate risk*. If the riyal depreciates relative to the dollar, Aramco will lose wealth on the exchange back to dollars when they go to move those funds back into their business. It's in their interest to deal with assets denominated in USD (i.e. T-Bonds) in order to avoid this.  So now because the Saudis want T-Bonds as well, the additional demand pushes the market price of our bond from $100 to $102. And the effective one year borrowing rate for the Government goes from 5% to 2.9%.      (105 - 102)/102 = .029411 = 2.9%  And there you have it, cheaper borrowing. It's also worth noting how this encourages business around the world to deal in dollars which are directly controlled by the federal reserve. This makes the US's position extremely powerful. Why can't the Fed simply bid more than the bond's maturity value to lower interest rates below zero? The FED could do this but then it would have to buy all the bonds in the market since all other market participants would not be willing to lend money to the government only to receive less money back in the future.  Not everyone has the ability to print unlimited amounts of dollars :) It depends on what actions the European Central Bank (ECB) takes.  If it prints Euros to bail out the country then your Euros will decline in value.  Same thing with a US state going bankrupt.  If the FED prints dollars to bailout a state it will set a precedent that other states can spend carelessly and the FED will be there to bail them out by printing money. If you own bonds issued by the bankrupting state then you could lose some of your money if the country is not bailed out. No, they are not recession proof.   Assume several companies, that issued bonds in the fund, go bankrupt.  Those bonds could be worthless, they could miss principle payments, or they could be restructured.  All would mean a decline in value. When the economy shrinks (which is what a recession is) how does the Fed respond?  By lowering interest rates.  This makes current bonds more valuable as presumably they were issued at a higher rate, thus the recession proof prejudice.  However, there is nothing to stop a company (in good financial shape) from issuing more bonds to pay the par value on high-interest bonds, thus refinancing their debt.  Sort of like how the bank feels when one refinances the mortgage for a lower rate.   The thing that troubles me the most is that rates have been low for a long time.  What happens if we have a recession now?  How does the Fed fix it?  I am not sure exactly what the fallout would be, but it could be significant. If you are troubled, you should look for sectors that would be hurt and helped by a Trump-induced recession.  Move money away from those that will be hurt.  Typically aggressive growth companies are hurt (during recessions), so you may want to move money away from them.  Typically established blue chip companies fare okay in a recession so you may want to move money toward them.  Move some money to cash, and perhaps some towards bonds.   All that being said, I'd keep some money in things like aggressive growth in case you are wrong. "This is an easy question - The US government has demonstrated, repeatedly, that it **will** bail out the ""established"" auto industry.   Tesla is very very cool, and may well bury the rest of the auto industry eventually, but they're not viewed as ""too big to fail"".   Thus, Ford's bonds, even if *practically* ""junk"", are essentially backed by US Treasury; that's a pretty good deal, if you're looking for ultra low risk." "Bingo, great question.  I'm not the original poster, ""otherwiseyep"", but I am in the economics field (I'm a currency analyst for a Forex broker).  I also happen to strongly disagree with his posts on the origin of money.  To answer your question:  the villagers are forced to use the new notes by their government, which demands that their income taxes be paid with the new currency.  This is glossed over by otherwiseyep, which is unfortunate because it misleads people who are new to economics into believing the system of fiat money we have now is natural/emergent (created from the bottom-up) and not enforced from the top-down.  Legal tender laws enforced in each nation's courts mean that all contracts can be settled in the local fiat currency, regardless of whether the receiver of the money wants a different currency.  These laws (and the income tax) create an artificial ""root demand"" for the fiat currency, which is what gives it its value.  We don't just *decide* that green paper has value.  We are forced to accumulate it by the government.  Fiat currencies are not money.  We call them money, but in fact they are credit derivatives.  Let me explain:  A currency's value is inextricably tied to the nation's bond market.  When investors buy a nation's bonds, they are loaning that nation money.  The investor expects to receive interest payments on the bonds.  The interest rate naturally rises as the bonds are perceived to be more-risky, and naturally falls as the bonds are perceived to be less-risky.  The risk comes from the fact that governments sometimes get really close to not being able to pay their interest payments.  They get into so much debt, and their tax-revenue shrinks as their economy worsens.  That drives up the interest rate they must pay when they issue new bonds (ie add debt).  So the value of a currency comes from tax revenue (interest payments).  If a government misses an interest payment, or doesn't fully pay it, the market considers this a ""credit event"" and investors sell their bonds and freak out.  Selling bonds has the effect of driving interest rates even higher, so it's a vicious cycle.  If the government defaults, there's massive deflation because all debt denominated in that currency suddenly skyrockets due to the higher interest rates.  This creates a chain of cascading defaults - one person defaults, which leads another person, and another, and so on.  Everyone was in debt to everyone else, somewhere along the chain.  In order to counteract this deflation (which ultimately leads to the kind of depression you saw in 1930's US), governments will print print print, expanding the credit supply via the banks.  So this is what you see happening today - banks are constantly being bailed out all over the Western world, governments are cutting programs to be able to meet their interest payments, and central banks are expanding credit supplies and bailing out their buddies.  Real money has ZERO counterparty risk.  What is counterparty risk?  It's just the risk that the guy who owes you something won't honor his debt.  Gold and silver and salt and oil aren't IOU's.  So they can be real money." "If Illinois cannot go bankruptcy This is missing a few, very important words, ""...under current law.""   The United States changed the law so as to allow Puerto Rico to go into a form of bankruptcy.  So you cannot rely on a lack of legal support for bankruptcy to protect any bond investments you might make in Illinois.  It is entirely possible for the federal government to add a law enabling a state to discharge its debts through a bankruptcy process.  That's why the bonds have been downgraded.  They are still fine now, but that could change at any time.   I don't want to dive too deep into the politics on this stack, but I could quite easily see a bargain between US President Donald Trump and Democrats in Congress where he agreed to special privileges for pension debts owed to former employees in exchange for full discharge of all other debts.  That would lead to a complete loss of value for the bonds that you are considering.  There still seem to be other options now, but they seem to be getting closer and closer to that." "Usually when the government defaults, the currency gets devalued. So as a debtor, that's a good thing -- your debt gets devalued. The ""catch"" is that your income and buying power is also devalued. So unless you happen to own the type of assets that become more valuable during those circumstances (real property, farms, utilities, certain industrial things, etc) you're looking at tough times ahead." How would you compute the earnings for governments that are some of the main issuers of bonds and debt? When governments run deficits they would have a negative earnings ratio that makes the calculation quite hard to evaluate. It is different this time. But I think the risk of asset prices rising is almost as equal as them falling. QE caused asset price inflation, but QE was only to calm/support the market. They're probably not going to stuff that QE money back into the central bank for a very long time either. Maybe, they'll just keep rolling over the bonds out to maturity, while relying on deficits to inflate away the assets at the Fed.  https://youtu.be/o8LAUQwv77Q  My bet is the main risks going forward are political risks, and continued modest inflation among things not measured by CPI. "So how does one of these get set up exactly? If a private company wants to backstop their ability to repay bond obligations with public funds, doesn't an agreement like that have to go through something like a city council meeting before it's approved? If it does, and that happened in these cases, then the municipalities made a bad decision on an ""investment"" that included some level of risk, just like any other investment they make. If it doesn't work out, it shouldn't be a surprise who's on the hook for the payment." There is a large market where notes/bills/bonds are traded, so yes you can sell them later.  However, if interest rates go up, the value of any bond that you want to sell goes down, because you now have to compete with what someone can get on a new issue, so you need to 'discount' the principal value of your bond in order for someone to want to buy it instead of a new bond that has a higher interest rate. The reverse applies if interest rates fall (although it's hard to get much lower than they are now).  So someone wanting to make money in bonds due to interest rate changes, generally wants to buy at higher interest rates, and then sell their bonds after rates have gone down.  See my answer in this question for more detail Why does interest rate go up when bond price goes down? To answer 'is that good' the answer depends on perspective: This article is 100% incorrect. The governments main concern is to PREVENT depositors and tax payers from losing funds in the case of bank default.  How?  By having debt holders being forced to converted into equity to create a capital buffer to keep a bank solvent which will help protect depositors and prevent tax payers from having to bail the banks out.  Please ask me more questions on this as I have done a lot of work on this topic as of late. The math that works at the nation-scale doesn't work the same for an individual or even smaller companies (even though larger companies actually dwarf many whole *countries*).   So while US Treasuries are a good investment for many foreign governments, that isn't universally true for all investors. I always find this funny. How can government bonds be in attractive and currency be attractive?  With monetary policy America guarantees that it can't default on debt. The only thing that can happen which breaks this is if the government prints itself out of debt. In which case not only will you bonds be worthless but so will your cash.  So to all the investors with boats of cash, you are trading one problem for the same problem. The only difference is you can hold the second problem in your hands.  Fools.