Hi all
Please could someone help me out with what is probbly a stupid question. When the government sells a bond to someone, do they pay just the intrest on the bond till the due date and then pay the principle off in a lumbsum? When they say, “rolling the debt over” do they mean refinancing the principle till a future date?
Or do I have it all wrong and it works the sameway the bond on my house works?
Thanks
Depends on the bond type. A T-bill, or ‘zero coupon bond’ pays interest plus principal at years end. To pay that, the government emits an other bond, a practice called rolling over. So, I need 100 bucks now, and I issue a 5% coupon bond. At year’s end I must pay you 105 bucks, but I do not have that money. So I borrow 105 dollars with an other, 5% bond. At year’s end I must pay 1.1025 bucks. As I have no money to pay those I borrow…you get the idea. Debt just keeps zooming until no one will lend you the money you need to pay past debt.
ok thanks. So they actually get the money and dont have to pay a cent till the due date? Wow! If only I could get a loan like that. 
No problem..just give me cash now..and I’ll send you a check later.