<p>Government gets the loans from central bank, private banks, other governments, retirement funds and other private business and from private individuals. If you purchase government bond or treasury you are lending to the government.</p>
<p>The implicit interest rate on government loans is determined by supply and demand on bond markets. I use the word implicit interest rate because governments bonds do not pay interest but coupons, and bonds might not always sell at face value, but from those two you can calculated the implied interest government pays on its debt.</p>

CC BY-SA 4.0
2022-05-29T12:55:15.823Z
He @1muflon1, could you make the market mechanics a bit more specific will this be an auction or will the government just state a price and then adapt it based on supply and demand? (Maybe a stupid question I'm a total nuby who just reads the news.)
Keep_On_Cruising
CC BY-SA 4.0
2022-05-29T14:46:38.310Z
@Keep_On_Cruising that depends on what country we are talking about. Also usually it’s done in multiple ways. What concrete country you have in mind?
1muflon1
CC BY-SA 4.0
2022-05-30T08:18:24.233Z
Let’s say the dutch government, and thanks for reponding!
Keep_On_Cruising
CC BY-SA 4.0
2022-05-30T08:46:21.973Z
@Keep_On_Cruising Dutch government auctions most of the bonds
1muflon1
CC BY-SA 4.0
2022-05-30T10:37:45.940Z
Okay so will this descriptions be somewhat correct? "We issue bonds at a simple yield of 0.5%, how much can we borrow?" And then one bank says we can lend  you 100 million at that rate, another one says we can offer you 105 million for that rate, etc.
Keep_On_Cruising
CC BY-SA 4.0
2022-05-30T10:44:33.877Z
@Keep_On_Cruising no government doesn’t determine yield. The way how it works is that gov issues bond let’s say 1000 euro face value bond (this means that at maturity you get 1000 euro) also government might choose to pay coupon on the bond which would be paid every year or semi-annually or monthly etc. then this bond will be auctioned where it’s possible that it sells for more or less than 1000 euros, once we know the market price of the bond (for example the bond sold for 500) we can determine yield from the price at which bond sold coupons and face value
1muflon1
CC BY-SA 4.0
2022-05-30T10:48:08.837Z
Nice explanation! Do you know any good source where you can read more of how these auctions happen in practice?
Keep_On_Cruising
CC BY-SA 4.0
2022-05-30T10:49:48.303Z
@Keep_On_Cruising I know good source for US not for NL https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci11-2.pdf
1muflon1
CC BY-SA 4.0
2022-04-07T04:47:19.710Z
2022-04-07T04:58:21.887Z
2022-04-07T04:58:21.887Z
1muflon1
<p>Do governments get loans from the private banks? Or do they loan directly from the central banking institutes? And how is the interest rate determined for these loans (say for a fixed maturity), is this by market mechanics?</p>

CC BY-SA 4.0
2022-04-07T08:16:04.157Z
Fundamentally, a loan and a bond are different. Both are debt, but the latter is marketable, which usually results in lower interest rates. The vast majority of all government debt is in the form of bonds.
Alex
<government-debt><government-spending>
Where do governments get their loans from?
Keep_On_Cruising
# Where do governments get their loans from?

(Asked by: username_0 on 2022-04-06)

Do governments get loans from the private banks? Or do they loan directly from the central banking institutes? And how is the interest rate determined for these loans (say for a fixed maturity), is this by market mechanics?

**Tags:** government-debt, government-spending

> **Comments:**
> **username_1**: Fundamentally, a loan and a bond are different. Both are debt, but the latter is marketable, which usually results in lower interest rates. The vast majority of all government debt is in the form of bonds.  

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## 1 answers

### Answer by username_2 on 2022-04-07. Score: 1 | Accepted answer

Government gets the loans from central bank, private banks, other governments, retirement funds and other private business and from private individuals. If you purchase government bond or treasury you are lending to the government.

The implicit interest rate on government loans is determined by supply and demand on bond markets. I use the word implicit interest rate because governments bonds do not pay interest but coupons, and bonds might not always sell at face value, but from those two you can calculated the implied interest government pays on its debt.

> **Comments:**
> **username_0**: He @username_2, could you make the market mechanics a bit more specific will this be an auction or will the government just state a price and then adapt it based on supply and demand? (Maybe a stupid question I'm a total nuby who just reads the news.)  
> **username_2**: @username_0 that depends on what country we are talking about. Also usually it’s done in multiple ways. What concrete country you have in mind?  
> **username_0**: Let’s say the dutch government, and thanks for reponding!  
> **username_2**: @username_0 Dutch government auctions most of the bonds  
> **username_0**: Okay so will this descriptions be somewhat correct? "We issue bonds at a simple yield of 0.5%, how much can we borrow?" And then one bank says we can lend  you 100 million at that rate, another one says we can offer you 105 million for that rate, etc.  
> **username_2**: @username_0 no government doesn’t determine yield. The way how it works is that gov issues bond let’s say 1000 euro face value bond (this means that at maturity you get 1000 euro) also government might choose to pay coupon on the bond which would be paid every year or semi-annually or monthly etc. then this bond will be auctioned where it’s possible that it sells for more or less than 1000 euros, once we know the market price of the bond (for example the bond sold for 500) we can determine yield from the price at which bond sold coupons and face value  
> **username_0**: Nice explanation! Do you know any good source where you can read more of how these auctions happen in practice?  
> **username_2**: @username_0 I know good source for US not for NL https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci11-2.pdf  

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