Sovereign bonds are issued by a country's central government for fiscal reasons. Developed market sovereign issues are characterized by a strong, stable, well-diversified domestic economy, and emerging market sovereign issuers are usually characterized by higher growth but less stable and less well-diversified economies subject to greater fluctuations over the economic cycle.

Sovereign bonds take different names and forms, depending on where they are issued, their maturities, and their coupon types. For example, U.S. government bonds with an original maturity shorter than one year are known as T-bills. The most recently issued U.S. Treasury bond of a particular maturity is known as a on-the-run issue.

Sovereign bonds are usually unsecured and are backed by the taxing authority of a national government. Credit rating agencies perform sovereign risk analysis in both local currency and foreign currency. The risk level of local and foreign currency is different. Generally, if an issuer is planning to default, it is more likely to do so with a foreign currency issue, as it has less control over foreign currency with respect to its exchange rate.

Sovereign bonds can be domestic bonds, foreign bonds, and Eurobonds. They can be fixed-rate, floating-rate or inflation-linked bonds. For example, Treasury Inflation Protection Securities (TIPS) are T-notes or T-bonds that are adjusted for inflation.