What is a Government Paper?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 10 October 2018
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Government paper is a term referring to any debt security product that is issued and/or backed by a national government. Examples in the United States include treasury securities and mortgages backed by the Government National Mortgage Association, known informally as Ginnie Mae. Within a particular company, government paper is usually considered the most secure type of debt security, though ratings of risk vary from country to country.

A debt security is one in which the investor is effectively lending money to the issuer. In return, the investor has the right to get that money back on a future date, plus interest. This is in contrast to an equity security where the money is not refundable, but the investor takes an ownership stake in the issuing organization. By definition, a national government cannot issue equity securities.


Both corporations and governments can issue debt securities. Government paper covers all types that can be issued by a government. Within the United States, the main types are treasury bills, treasury notes, and treasury bonds. The difference between these is the time period between the issue and the money being returned — up to one year for a bill, one to 10 years for a note, and longer than 10 years for a bond. Investors can and do trade and sell these securities on the open market, so in many cases, the person who cashes in the security on its redemption date will not be the person who originally bought it from the government.

There are several other examples of government paper. A Treasury Inflation-Protected Security works in the same way as a bond, but the interest payment is adjusted to take account of inflation, meaning the investor knows exactly what real-terms return will be paid. There are a range of bonds that cannot be sold by one investor to another, such as war bonds, meaning the original investor or their heirs will claim the money upon redemption. There are also programs where government agencies offer some form of guaranteed return on investments linked to loans, such as Ginnie Mae.

In theory, government paper is the safest type of debt security because a government is much less likely to be unable to pay out than a company, which may have gone out of business. Even if a government operates at a deficit, it will normally be able to fund repayments, usually through borrowing more money, which may even involve issuing news bonds to fund old bonds. International credit rating agencies, however, still distinguish between different countries: government paper from the largest developed nations is usually rated as the most secure, with that from unstable governments in developing nations rated riskier. If a country's rating is downgraded, such as happened to Greece several times in 2009 and 2010, buyers of government paper will demand higher interest rates, which can make the government's borrowing more expensive and worsen its financial situation.



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