What is the difference between a corporate bond and a government bond?

The main difference between a corporate bond and a government bond lies in the issuer of the bond.

A corporate bond is issued by a corporation or a company to raise capital for various purposes such as expansion, acquisitions, or debt refinancing. Investors who purchase corporate bonds essentially lend money to the company in exchange for regular interest payments and the return of the principal amount at maturity. The risk associated with corporate bonds is higher compared to government bonds as it depends on the financial health and creditworthiness of the issuing company.

On the other hand, a government bond is issued by a national government to finance its activities, such as infrastructure development, social programs, or budget deficits. Government bonds are considered to be relatively safer investments as they are backed by the full faith and credit of the government. The risk of default is generally lower for government bonds compared to corporate bonds. Government bonds also serve as a benchmark for interest rates in the economy.

In summary, the key difference between a corporate bond and a government bond is the issuer - a corporate bond is issued by a company, while a government bond is issued by a national government. The risk and return associated with these bonds can vary based on the financial stability and creditworthiness of the issuer.