They don't have to think about that bond again for ten years.
When somebody will present it to the
government and the government will pay them.
Okay?
But that bond then is resold by the primary
dealer and goes to live in that secondary market.
Where it may be bought and sold dozens of times until the day of its maturity.
Well who buys and sells these bonds in the secondary market?
There are a lot of people.
So we've got financial institutions, we've got pension funds, insurance funds, banks.
That what they do is they have some savings, they have
some cash, and they want to earn some interest on it.
Well a very safe way to earn your interest is to buy a government bond.
Because you know, number one, that the
government won't default, we're crossing our fingers.
We know the government will not default on that bond,
you will get the money back when the maturity date comes.
And second you know, that a lot of other people want those bonds.
So if I decide that I need my money before ten
years are up, I can turn around and resell it to somebody.
And they'll give me the equivalent of what that bond is worth before ten years.
So financial institutions are very active.
And then households and firms are out there.
Corporations will have savings and they'll say we'll let's see what should I
do with my savings leave it in the bank at very low interest.
Or get no interest at all put it in the vault.
Or should I go and buy some bonds.
Which is a very safe way to get some earnings.
So they'll buy bonds and sell bonds when they need them.
Households do this.
You know, you may have, you may own
some U.S. Savings Bonds, some U.S. Treasury Bonds.
You may have some of your savings in a mutual fund that puts
some of their money into U.S. Bonds for you, so you earn interest.
Governments buy these bonds.
So that's kind of funny to think about.
Why would a government buy its own bonds?
But when you realize that governments also have savings.
They are collecting money from us that they
have to pay us someday in pensions, all right?
And we hope they will.
So they have this cash sitting there and they need to earn some interest on it.
What safer place to put the cash than in their own bonds.
There's no currency risk.
It's not like a stock market where actually you could lose the
initial value of your, of your investment if things go very badly.
It's a bond.
You know you'll pay yourself, so governments buy their own bonds back.
In fact you'll see a lot of times that statistics will refer
to Gross Public Debt and Net Public Debt.
Net Public Debt is just all the money the
government owes minus the money it actually owes to itself.
Okay.
So governments will buy bonds and central banks will buy them.
And we'll talk about this in the next session, but
I want you to be aware that they are there.
And then another group that will come in there and buy those bonds are foreigners.
Foreigners will come and say, you know I really like to have some dollar assets.
Or I've earned all of these extra dollars from exporting to the United States, I
think what I will do is buy bonds with them so that I earn some interest.
Or a foreign pension fund says I'd to diversify my risk.
I've got some British bonds, I've got
some bonds from the eurozone, from different countries.
I've got some bonds from emerging economies.I'd
also like to have some U.S. bonds.
So that there's the diversification in my portfolio of assets.
And so they'll come in by bonds.