So if a government wants to borrow money it issues bonds at a fixed interest rate at a certain maturity date? How does it know what to set that rate at? Bonds are sold on the secondary market at market value but that is just between private investors right?
How does the secondary market price impact how the government services its debt given they will just offer par 100 at 4%?
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The real trick is that governments actually auction bonds rather than selling them at a fixed price, so the market decides what they are worth at that moment. Typically though they choose a coupon rate (the percentage quoted) which matches market yields so that the bonds sell at or close to the nominal value.
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