国債は政府が発行する債券で、安全性が高いことが特徴です。国債には固定利付国債や変動利付国債などいくつかの種類があります。国債を所有することは資産運用の一つとして考えられ、個人向け国債も存在します。国債の所有者は主に日本銀行や金融機関です。国債のメリットとデメリットは、高いセキュリティや収益性の低さなどがあります。金融商品の中でも国債は預金に近い使われ方をしており、投資信託を利用することも選択肢の一つです。
Many people may have heard the term “government bonds,” but few may actually own government bonds or understand their mechanisms and significance. Similar to stocks, government bonds are an ideal investment product, so it’s important to grasp these points firmly.
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Table of Contents
What are government bonds?
Advantages and disadvantages of government bonds
Types of government bonds
Generalization
What are government bonds?
Government bonds are one type of bond among several types. So, what exactly are government bonds? Let’s first explain what bonds are.
What are bonds?
Bonds are securities issued by countries, local governments, organizations, etc., when borrowing money from investors. Each bond issuance determines the interest rate, interest payment date, maturity date (repayment date of borrowed funds), and investors who purchase bonds can earn interest while holding the bonds. On the call date, unless the issuer goes bankrupt, the face value of the bond will be refunded.
For example, when you buy a government bond with a face value of 1 million yen and a nominal interest rate (interest paid annually) of 0.5%, you will receive 5,000 yen in interest each year until maturity. At maturity, you will receive the principal of 1 million yen. Unlike stocks, bonds have a repayment obligation.
Bonds are named differently depending on the issuing institution.
・Local government bonds → Municipal bonds
・Bonds issued by companies → Corporate bonds
・Bonds issued by governments → Government bonds
What is a country’s debt?
Government bonds are securities issued by various countries, and they are issued all over the world. Government bonds issued by Japan are called “Japanese government bonds” or simply “JGBs.”
Generally, taxes are used as funds for social security and various infrastructure projects. However, when tax revenue alone is insufficient to cover the financial shortfall, the government issues government bonds and borrows money from investors. Investors who agree to the government bond proposal purchase government bonds, and this mechanism allows funds to flow into the country.
So, who owns government bonds?
<圖1>Government bond holders
Reference: Ministry of Finance website, International Information “Breakdown of holders by type of government bonds, etc. (speed report as of the end of December of Reiwa 2)”
As shown in Figure 1, more than half of Japanese government bonds are held by the Bank of Japan (BOJ), with the majority held by financial institutions such as banks and private insurance companies.
Advantages and disadvantages of government bonds
Curious about the advantages and disadvantages of buying government bonds.
Benefits of government bonds
Let’s look at the main advantages.
High security
Government bonds, being issued by the government, are safer compared to other financial products. For example, while stock investments carry the risk of substantial price fluctuations that could potentially erode the principal, holding government bonds until maturity ensures that the principal will not erode unless the government goes bankrupt.
Possibility of small investments
The purchase price of individual government bonds starts from 10,000 yen, making it a low barrier to investment and attractive.
The interest rate on individual government bonds is higher than that of regular deposits, with a 5-year fixed interest rate of 0.36% (as of April 2024). The interest rate on large bank 5-year fixed deposits is around 0.02% (as of April 2024), indicating that government bond interest rates are higher.
Disadvantages of government bonds
Let’s also look at the disadvantages.
No immediate redemption
Individual government bonds can only be redeemed after one year, and cannot be converted into cash immediately.
Adjustment fees for mid-term cancellations
Government bonds can be redeemed one year after purchase. However, if canceled midway, an adjustment amount under the name of “mid-term redemption adjustment amount” will be deducted, leading to a potential erosion of the principal amount. So, be cautious.
Low profitability
While government bonds have low risk of principal erosion and are safe, their profitability tends to be lower compared to stock investments or investment trusts. Regarding Japanese government bonds, despite recent increases in interest rates, the fact that it is an annual rate of less than 1% on a non-compounding basis indicates that it may not be suitable for those seeking high profits.
Types of government bonds
Here, we explain the types of Japanese government bonds.
Types of government bonds
Japan sells several types of government bonds. Let’s briefly explain each one.
Fixed-rate government bonds
Fixed-rate bonds are bonds where the interest rate at issuance remains fixed, and the interest rate remains the same after maturity. These bonds have durations of 2, 5, 10, 20, 30, and 40 years, with interest collected every six months.
Variable-rate government bonds
The interest rate on variable-rate government bonds fluctuates according to prevailing interest rates. Interest can be collected every six months.
Individual government bonds
Government bonds are sold specifically to individuals and cannot be purchased by companies. There are two types: a 3-year and 5-year fixed interest loans and a 10-year variable interest loan, with different interest rates depending on the duration. They can be purchased starting from 1,000 yen and are suitable for individual investors due to their high safety. Additionally, a minimum interest rate of 0.05% is guaranteed.
New over-the-counter government bond sales
New over-the-counter sales of government bonds refer to government bonds sold through a new over-the-counter sales method. Similar to individual government bonds, it is one of the easiest government bonds for individuals to purchase. Fixed-rate government bonds have maturities of 10, 5, and 2 years. The minimum purchase amount is 50,000 yen.
Reconstruction support bonds
Government bonds issued to support the reconstruction efforts from the Great East Japan Earthquake. The subscription period was until December 24, 2012, and they are not currently being solicited.
Inflation-linked government bonds
Government bonds where the principal fluctuates based on market movements. While the interest rate remains unchanged until maturity, the principal itself is impacted by inflation, causing the interest to increase or decrease based on inflation.
Generalization
Due to long-term monetary easing keeping interest rates low, government bonds are relatively less profitable and are currently used more like deposits than investments. Although not covered here, bonds are also financial products that fluctuate in price depending on market trading. If you want to include bonds in your investment portfolio, you can use investment trusts that invest in bonds as an option.
Advice on asset management and investments is typically provided at bank or financial institution branches today. However, on the internet, various individuals offer investment tips through platforms like YouTube and social media from their respective viewpoints. But, is this advice truly right for you?
In a world with diverse financial products, it is an era where you need someone to support and protect you when it comes to asset management and investments.
●Interview cooperation: Miki Fujiwara
●Kyoto Media Line Editorial Department (Website: