Why are government bond yields usually lower than corporate bonds? Government bonds carry minimal credit risk because the government can raise funds to repay debt, unlike corporate issuers. Therefore, investors accept lower yields for government bonds despite market risks.

Practice question from NISM XV Mock Test 3 — bank. The correct answer is highlighted below with a full explanation.

Options

A

Lower market risk
Lower credit risk

Correct answer
C

Government is non-profit
D

All of the above

Why this is the answer

Government bonds are considered virtually default-free, so they offer lower yields than corporate bonds, which must compensate investors for potential credit risk.

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