Local Government Funding Agencies: Lessons from Success and Failure

Governments have traditionally used bond markets to finance their huge infrastructure investments. These markets are the largest branch of the global financial markets. Institutional investors invest substantial amounts of pension funds and other longterm savings in these markets. Financial intermediaries and companies also use these markets to take and hedge risks. Bond markets are a cornerstone of the financial markets because government bonds:Generally have the highest credit ratings in their respective countries, so investors can be sure that their savings are securely invested;• Normally provide a reasonable real return to investors over the long term;• Are the most liquid forms of investments, allowing investors and financial intermediaries to buy and sell them with very low trading costs.