What distinguishes a government bond from a corporate bond?

The distinction between government bonds and corporate bonds primarily revolves around the nature of the issuers and their financial backing. Government bonds are issued by national governments and are typically seen as lower risk because they are backed by the government's ability to raise taxes and generate revenue. This means that the creditworthiness of a government bond is closely tied to the financial stability and reliability of the issuing government.

In contrast, corporate bonds are issued by private corporations and can carry a higher level of risk compared to government bonds. This is largely due to the possibility that a corporation may face financial difficulties, which could impact its ability to repay its debt. Therefore, the creditworthiness of corporate bonds varies significantly based on the financial health of the issuing company.

The other choices reflect different characteristics that do not accurately capture the main difference. For example, stating that government bonds are backed by physical assets is misleading, as they are not necessarily backed by specific assets like some forms of collateralized debt but rather by the issuing government's financial integrity. Moreover, while it is true that corporate bonds can involve higher credit risk, this does not directly address their relationship to government bonds; it merely highlights a feature of corporate bonds alone. Lastly, corporate bonds are indeed tradable in the market, unlike the statement suggests