Edgar Filing: MFS GOVERNMENT MARKETS INCOME TRUST

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

MFS GOVERNMENT MARKETS INCOME TRUST N-CSRS

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-05078

MFS GOVERNMENT MARKETS INCOME TRUST

(Exact name of registrant as specified in charter)

111 Huntington Avenue, Boston, Massachusetts 02199

(Address of principal executive offices) (Zip code)

Susan S. Newton

Massachusetts Financial Services Company

111 Huntington Avenue

Boston, Massachusetts 02199

(Name and address of agents for service)

Registrant’s telephone number, including area code: (617) 954-5000

Date of fiscal year end: November 30

Date of reporting period: May 31, 2013

ITEM 1.

REPORTS TO STOCKHOLDERS.

SEMIANNUAL REPORT

May 31, 2013

LOGO

MFS® GOVERNMENT MARKETS INCOME TRUST

LOGO

MGF-SEM

Managed Distribution Policy Disclosure

The MFS Government Markets Income Trust’s (the fund) Board of Trustees has adopted a managed distribution policy. The fund seeks to pay monthly distributions based on an annual rate of 7.25% of the fund’s average monthly net asset value. The fund’s total return in relation to changes in net asset value is presented in the Financial Highlights. You should not draw any conclusions about the fund’s investment performance from the amount of the current distribution or from the terms of the fund’s managed distribution policy. The Board may amend or terminate the managed distribution policy at any time without prior notice to fund shareholders; however, at this time, there are no reasonably foreseeable circumstances that might cause the termination of the managed distribution policy.

With each distribution, the fund will issue a notice to shareholders and an accompanying press release which will provide detailed information regarding the amount and composition of the distribution and other related information. In accordance with the amounts and sources of distributions reported in the notice to shareholders – the sources of distributions are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.

Under a managed distribution policy the fund may at times distribute more than its net investment income and net realized capital gains; therefore, a portion of your distribution may result in a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the fund is paid back to you. A return of capital does not necessarily reflect the fund’s investment performance and should not be confused with ‘yield’ or ‘income’.

MFS® GOVERNMENT MARKETS INCOME TRUST

New York Stock Exchange Symbol: MGF


Letter from the Chairman and CEO			1
Portfolio composition			2
Portfolio manager profile			4
Other notes			4
Portfolio of investments			5
Statement of assets and liabilities			13
Statement of operations			14
Statements of changes in net assets			15
Financial highlights			16
Notes to financial statements			18
Report of independent registered public accounting firm			28
Board review of investment advisory agreement			29
Proxy voting policies and information			29
Quarterly portfolio disclosure			29
Further information			29
Contact information back cover

NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE

LOGO

LETTER FROM THE CHAIRMAN AND CEO

Dear Shareholders:

With the year almost half over, the global economy continues to grind forward slowly, weighed down by various austerity measures. The U.S. economy remains a steadying

force with resilient consumers, who took the payroll tax increase in stride and did not seem fazed by the sequestration’s early impact. The U.S. housing market recovery remains robust. With U.S. consumer sentiment rising to multi-year highs, the country’s economic outlook remains positive, except for an anticipated mid-year sequestration-related slowdown. However, market volatility has been heightened, with renewed expectations of a shift in U.S. Federal Reserve policy and a tapering of its monthly bond-buying program.

Japan has been another bright spot, with signs of a turnaround prompted by “Abenomics,” the stimulus policies of Prime

Minister Shinzo Abe. Consumer and business sentiment have risen, along with prospects for exporters, who gain as a devalued yen means less expensive products overseas and boosted sales. The Japanese stock market advanced more than 30% from January through May. However, doubts remain over whether Abenomics will succeed in lifting Japan out of its long-term deflationary slump. The major deterrent to global growth remains the eurozone’s chronic contraction, which has weighed on that 17-member region. China has seen its factory activity decelerate, which is worrisome news for the country’s trading partners.

As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs integrated, global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.

We are mindful of the many economic challenges investors face, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.

Respectfully,

LOGO

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

July 17, 2013

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

PORTFOLIO COMPOSITION

Portfolio structure (i)

LOGO


Fixed income sectors (i)
Mortgage-Backed Securities			50.4%
U.S. Government Agencies			17.4%
U.S. Treasury Securities			17.3%
High Grade Corporates			9.4%
Emerging Markets Bonds			6.2%
Commercial Mortgage-Backed Securities			3.6%
Non-U.S. Government Bonds			0.7%
Municipal Bonds (o)			0.0%


Composition including fixed income credit quality (a)(i)
AAA			2.3%
AA			3.0%
A			3.6%
BBB			11.0%
U.S. Government			20.4%
Federal Agencies			67.8%
Not Rated			(3.1)%
Cash & Other			(5.0)%

Portfolio facts (i)
Average Duration (d)			5.3
Average Effective Maturity (m)			6.7 yrs.

(a)

For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities, including fixed income futures contracts, which have not been rated by any rating agency. Cash & Other includes cash, other assets less liabilities, offsets to derivative positions, and short-term securities. The fund may not hold all of these instruments. The fund is not rated by these agencies.

Portfolio Composition – continued

(d)	Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move.

(i)

For purposes of this presentation, the components include the market value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. The bond component will include any accrued interest amounts. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than market value. Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.

(m)

In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity.

(o)	Less than 0.1%.

From time to time “Cash & Other Net Assets” may be negative due to borrowings for leverage transactions, timing of cash receipts, and/or equivalent exposure from any derivative holdings.

Percentages are based on net assets as of 5/31/13.

The portfolio is actively managed and current holdings may be different.

PORTFOLIO MANAGERS’ PROFILES


Ward Brown	—	Investment Officer of MFS; employed in the investment management area of MFS since 2008. Portfolio Manager of the Fund since December 2012.

Robert Persons	—	Investment Officer of MFS; employed in the investment management area of MFS since 2000. Portfolio Manager of the Fund since December 2012.

Matthew Ryan	—	Investment Officer of MFS; employed in the investment management area of MFS since 1997. Portfolio Manager of the Fund since December 2012.

Geoffrey Schechter	—	Investment Officer of MFS; employed in the investment management area of MFS since 1993. Portfolio Manager of the Fund since April 2006.

Note to Shareholders: Effective December 1, 2012, Ward Brown, Robert Persons and Matthew Ryan are also Portfolio Managers of the Fund.

OTHER NOTES

The fund’s shares may trade at a discount or premium to net asset value. Shareholders do not have the right to cause the fund to repurchase their shares at net asset value. When fund shares trade at a premium, buyers pay more than the net asset value of underlying fund shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the fund’s liquidation. As a result, the total return that is calculated based on the net asset value and New York Stock Exchange price can be different.

The fund’s monthly distributions may include a return of capital to shareholders to the extent that the fund’s net investment income and net capital gains are insufficient to meet the fund’s target annual distribution rate. Distributions that are treated for federal income tax purposes as a return of capital will reduce each shareholder’s basis in his or her shares and, to the extent the return of capital exceeds such basis, will be treated as gain to the shareholder from a sale of shares. It may also result in a recharacterization of what economically represents a return of capital to ordinary income in those situations where a fund has long term capital gains and a capital loss carryforward. Returns of shareholder capital have the effect of reducing the fund’s assets and increasing the fund’s expense ratio.

The fund’s target annual distribution rate is calculated based on an annual rate of 7.25% of the fund’s average monthly net asset value, not a fixed share price, and the fund’s dividend amount will fluctuate with changes in the fund’s average monthly net assets.

In accordance with Section 23(c) of the Investment Company Act of 1940, the fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.

PORTFOLIO OF INVESTMENTS

5/31/13 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.


Bonds - 107.4%
Issuer	Shares/Par		Value ($)
U.S. Bonds - 99.3%
Agency - Other - 14.4%
Financing Corp., 10.7%, 2017	$	4,095,000	$	5,737,091
Financing Corp., 9.4%, 2018		3,085,000		4,201,551
Financing Corp., 9.8%, 2018		4,350,000		6,053,677
Financing Corp., 10.35%, 2018		6,820,000		9,827,845
Financing Corp., STRIPS, 0%, 2017		5,000,000		4,719,900

			$	30,540,064
Asset-Backed & Securitized - 3.6%
Citigroup Commercial Mortgage Trust, FRN, 5.696%, 2049	$	1,000,000	$	1,150,462
Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.322%, 2049		1,200,000		1,346,780
Commercial Mortgage Pass-Through Certificates, “A4”, 5.306%, 2046		1,366,646		1,526,940
Credit Suisse Mortgage Capital Certificate, 5.311%, 2039		500,000		556,196
CWCapital LLC, 5.223%, 2048		1,000,000		1,102,698
JPMorgan Chase Commercial Mortgage Securities Corp., “A3”, FRN, 5.929%, 2051		754,902		788,185
JPMorgan Chase Commercial Mortgage Securities Corp., “A4”, FRN, 5.813%, 2049		1,000,000		1,139,602

			$	7,610,863
Cable TV - 0.6%
Time Warner Cable, Inc., 8.25%, 2019	$	1,000,000	$	1,288,001

Chemicals - 0.3%
Dow Chemical Co., 8.55%, 2019	$	500,000	$	665,274

Computer Software - Systems - 0.4%
IBM Corp., 4%, 2042	$	847,000	$	823,707

Consumer Products - 0.3%
Avon Products, Inc., 5%, 2023	$	619,000	$	654,262

Energy - Independent - 0.0%
Hess Corp., 8.125%, 2019	$	30,000	$	38,616

Portfolio of Investments (unaudited) – continued


Issuer	Shares/Par		Value ($)
Bonds - continued
U.S. Bonds - continued
Food & Beverages - 1.0%
Anheuser-Busch InBev S.A., 7.75%, 2019	$	750,000	$	971,969
Kraft Foods Group, Inc., 6.125%, 2018		960,000		1,148,055

			$	2,120,024
Local Authorities - 2.3%
Nashville & Davidson County, TN, Metropolitan Government Convention Center Authority (Build America Bonds), 6.731%, 2043	$	580,000	$	718,394
New Jersey Turnpike Authority Rev. (Build America Bonds), “F”, 7.414%, 2040		32,000		46,299
Port Authority NY & NJ (168th Series), 4.926%, 2051		770,000		839,323
San Francisco, CA, City & County Public Utilities Commission, Water Rev. (Build America Bonds), 6%, 2040		1,650,000		2,016,795
State of California (Build America Bonds), 7.6%, 2040		420,000		609,550
University of California Rev. (Build America Bonds), 5.77%, 2043		450,000		540,171

			$	4,770,532
Major Banks - 0.7%
Bank of America Corp., 7.625%, 2019	$	170,000	$	214,124
Goldman Sachs Group, Inc., 3.625%, 2023		446,000		439,740
Merrill Lynch & Co., Inc., 6.05%, 2016		750,000		833,157

			$	1,487,021
Medical & Health Technology & Services - 0.2%
Catholic Health Initiatives, 2.95%, 2022	$	432,000	$	424,970

Metals & Mining - 0.1%
Freeport-McMoRan Copper & Gold, Inc., 5.45%, 2043 (n)	$	316,000	$	303,655

Mortgage-Backed - 50.3%
Fannie Mae, 4.665%, 2013	$	60,874	$	60,695
Fannie Mae, 4.77%, 2014		433,929		445,141
Fannie Mae, 4.826%, 2014		2,365,083		2,427,697
Fannie Mae, 5.1%, 2014		474,100		490,081
Fannie Mae, 4.74%, 2015		350,664		369,381
Fannie Mae, 4.78%, 2015		487,948		518,025
Fannie Mae, 4.815%, 2015		519,960		549,469
Fannie Mae, 4.82%, 2015		869,820		908,942
Fannie Mae, 4.85%, 2015		307,867		322,558
Fannie Mae, 4.86%, 2015		139,312		145,509
Fannie Mae, 4.87%, 2015		325,633		344,106
Fannie Mae, 4.89%, 2015		365,196		383,815
Fannie Mae, 5.464%, 2015		786,029		851,579
Fannie Mae, 5.09%, 2016		497,284		543,918

Portfolio of Investments (unaudited) – continued


Issuer	Shares/Par		Value ($)
Bonds - continued
U.S. Bonds - continued
Mortgage-Backed - continued
Fannie Mae, 5.424%, 2016	$	704,015	$	779,946
Fannie Mae, 5.845%, 2016		207,272		221,052
Fannie Mae, 6.5%, 2016 - 2037		1,967,783		2,198,933
Fannie Mae, 1.9%, 2017		166,995		170,293
Fannie Mae, 5.05%, 2017		501,264		549,711
Fannie Mae, 5.3%, 2017		548,135		603,983
Fannie Mae, 5.5%, 2017 - 2038		12,101,056		13,195,726
Fannie Mae, 6%, 2017 - 2037		3,708,872		4,090,241
Fannie Mae, 4.88%, 2020		215,912		238,495
Fannie Mae, 3%, 2027		879,999		916,970
Fannie Mae, 5%, 2035 - 2040		1,579,933		1,718,020
Fannie Mae, 4%, 2041		2,475,884		2,618,784
Fannie Mae, 4.5%, 2041		1,362,784		1,484,184
Fannie Mae, TBA, 3%, 2028 - 2043		3,228,000		3,246,251
Fannie Mae, TBA, 3.5%, 2043		7,406,000		7,653,974
Fannie Mae, TBA, 4.5%, 2043		4,215,000		4,502,737
Freddie Mac, 5%, 2016 - 2040		5,557,827		5,938,521
Freddie Mac, 1.426%, 2017		1,112,000		1,123,762
Freddie Mac, 2.303%, 2018		275,000		284,039
Freddie Mac, 2.323%, 2018		499,000		515,562
Freddie Mac, 2.412%, 2018		1,152,000		1,195,290
Freddie Mac, 2.699%, 2018		800,000		841,978
Freddie Mac, 2.13%, 2019		1,575,000		1,608,944
Freddie Mac, 4.186%, 2019		600,000		674,006
Freddie Mac, 5.085%, 2019		752,000		877,522
Freddie Mac, 6%, 2021 - 2038		2,105,135		2,309,348
Freddie Mac, 4.5%, 2024 - 2040		1,924,120		2,041,323
Freddie Mac, 5.5%, 2024 - 2036		2,477,365		2,707,038
Freddie Mac, 6.5%, 2037		547,375		610,675
Freddie Mac, 3.5%, 2042		444,006		461,932
Freddie Mac, TBA, 2.5%, 2028		7,173,000		7,295,799
Freddie Mac, TBA, 3%, 2028		463,000		479,621
Freddie Mac, TBA, 3.5%, 2043		9,150,000		9,434,400
Ginnie Mae, 5.5%, 2033 - 2042		2,701,689		2,957,065
Ginnie Mae, 4%, 2040 - 2041		521,753		558,770
Ginnie Mae, 3.5%, 2042		329,303		347,327
Ginnie Mae, 4.5%, 2042		574,000		625,552
Ginnie Mae, 5.612%, 2058		696,727		737,187
Ginnie Mae, 6.357%, 2058		560,220		598,598
Ginnie Mae, TBA, 3%, 2043		1,464,000		1,486,360
Ginnie Mae, TBA, 3.5%, 2043		8,249,000		8,629,872

			$	106,890,707

Portfolio of Investments (unaudited) – continued


Issuer	Shares/Par		Value ($)
Bonds - continued
U.S. Bonds - continued
Municipals - 0.0%
Florida Hurricane Catastrophe Fund Finance Corp. Rev. “A”, 1.298%, 2016	$	5,000	$	5,003

Natural Gas - Pipeline - 0.6%
Energy Transfer Partners LP, 8.5%, 2014	$	17,000	$	18,098
Kinder Morgan Energy Partners LP, 6.85%, 2020		1,000,000		1,238,036

			$	1,256,134
Network & Telecom - 0.2%
Verizon Communications, Inc., 8.75%, 2018	$	292,000	$	389,210

Other Banks & Diversified Financials - 0.2%
Capital One Bank (USA) N.A., 3.375%, 2023	$	336,000	$	331,473
Citigroup, Inc., 8.5%, 2019		80,000		104,802

			$	436,275
Real Estate - 0.4%
Simon Property Group, Inc., REIT, 5.875%, 2017	$	750,000	$	861,515

Tobacco - 0.6%
Altria Group, Inc., 9.7%, 2018	$	169,000	$	230,776
Altria Group, Inc., 9.25%, 2019		84,000		114,978
Lorillard Tobacco Co., 8.125%, 2019		796,000		1,006,755

			$	1,352,509
U.S. Government Agencies and Equivalents - 2.8%
Aid-Egypt, 4.45%, 2015	$	1,755,000	$	1,911,799
Freddie Mac, 2.375%, 2022		1,120,000		1,138,817
Small Business Administration, 6.34%, 2021		208,604		230,193
Small Business Administration, 6.35%, 2021		283,941		314,612
Small Business Administration, 6.44%, 2021		267,358		295,660
Small Business Administration, 6.625%, 2021		297,401		330,252
Small Business Administration, 5.52%, 2024		529,500		592,092
Small Business Administration, 2.21%, 2033		333,000		332,577
Small Business Administration, 2.22%, 2033		546,000		545,245
U.S. Department of Housing & Urban Development, 6.36%, 2016		113,000		113,390
U.S. Department of Housing & Urban Development, 6.59%, 2016		171,000		171,472

			$	5,976,109
U.S. Treasury Obligations - 20.3%
U.S. Treasury Bonds, 5.25%, 2029	$	1,448,000	$	1,905,025
U.S. Treasury Bonds, 4.75%, 2037		2,000,000		2,552,812

Portfolio of Investments (unaudited) – continued


Issuer	Shares/Par		Value ($)
Bonds - continued
U.S. Bonds - continued
U.S. Treasury Obligations - continued
U.S. Treasury Bonds, 4.375%, 2038	$	4,168,000	$	5,049,790
U.S. Treasury Bonds, 4.5%, 2039		3,220,100		3,984,874
U.S. Treasury Bonds, 3.125%, 2043		453,700		439,238
U.S. Treasury Notes, 4%, 2015		4,140,000		4,400,853
U.S. Treasury Notes, 0.875%, 2016		2,300,000		2,315,093
U.S. Treasury Notes, 2.625%, 2016		6,999,000		7,425,505
U.S. Treasury Notes, 4.75%, 2017 (f)		3,389,000		3,937,594
U.S. Treasury Notes, 2.625%, 2018		2,702,000		2,909,716
U.S. Treasury Notes, 2.625%, 2020		162,000		173,429
U.S. Treasury Notes, 3.125%, 2021		668,000		735,687
U.S. Treasury Notes, 1.75%, 2022		7,495,000		7,345,100

			$	43,174,716
Total U.S. Bonds			$	211,069,167

Foreign Bonds - 8.1%
Brazil - 2.0%
Banco do Brasil (Cayman Branch), 6%, 2020 (n)	$	100,000	$	113,500
Banco do Nordeste do Brasil (BNB), 3.625%, 2015 (n)		253,000		256,163
BNDES Participacoes S.A., 6.5%, 2019 (n)		475,000		544,350
Federative Republic of Brazil, 11%, 2040		183,000		220,240
Federative Republic of Brazil, 5.625%, 2041		323,000		359,338
Petrobras International Finance Co., 7.875%, 2019		453,000		546,974
Petrobras International Finance Co., 5.375%, 2021		1,377,000		1,455,949
Vale Overseas Ltd., 6.875%, 2039		165,000		177,707
Vale Overseas Ltd., 4.625%, 2020		104,000		107,665
Vale Overseas Ltd., 4.375%, 2022		309,000		306,911
Votorantim Participacoes S.A., 6.75%, 2021 (n)		125,000		142,500

			$	4,231,297
Canada - 1.0%
Barrick North America Finance LLC, 5.75%, 2043 (n)	$	108,000	$	101,222
Rogers Communications, Inc., 6.8%, 2018		1,000,000		1,232,550
Talisman Energy, Inc., 7.75%, 2019		650,000		810,583

			$	2,144,355
Chile - 0.7%
Corporacion Nacional del Cobre de Chile, 3.75%, 2020 (n)	$	209,000	$	214,305
E.CL S.A., 5.625%, 2021		566,000		623,473
Empresa Nacional del Petroleo, 6.25%, 2019		214,000		239,353
Sociedad Quimica y Minera de Chile S.A., 6.125%, 2016		429,000		470,595

			$	1,547,726

Portfolio of Investments (unaudited) – continued


Issuer	Shares/Par		Value ($)
Bonds - continued
Foreign Bonds - continued
China - 0.1%
CNPC (HK) Overseas Capital Ltd., 4.5%, 2021 (n)	$	226,000	$	242,922

Colombia - 0.1%
Republic of Colombia, 6.125%, 2041	$	104,000	$	124,540

France - 0.3%
Electricite de France, FRN, 5.25%, 2049 (n)	$	650,000	$	652,438

Iceland - 0.4%
Republic of Iceland, 4.875%, 2016 (n)	$	667,000	$	708,687
Republic of Iceland, 5.875%, 2022 (n)		101,000		113,878

			$	822,565
Malaysia - 0.2%
Petronas Capital Ltd., 7.875%, 2022	$	370,000	$	502,486

Mexico - 1.2%
Pemex Project Funding Master Trust, 5.75%, 2018	$	160,000	$	181,600
Petroleos Mexicanos, 8%, 2019		228,000		283,860
Petroleos Mexicanos, 6%, 2020		404,000		462,580
Petroleos Mexicanos, 5.5%, 2021		130,000		144,300
Petroleos Mexicanos, 4.875%, 2022		261,000		277,965
Petroleos Mexicanos, 5.5%, 2044 (n)		21,000		20,580
United Mexican States, 3.625%, 2022		1,164,000		1,204,740

			$	2,575,625
Peru - 0.1%
Republic of Peru, 8.75%, 2033	$	180,000	$	281,250

Romania - 0.0%
Republic of Romania, 4.375%, 2023 (n)	$	36,000	$	35,616

Russia - 1.1%
Gaz Capital S.A., 8.125%, 2014 (n)	$	509,000	$	546,615
Gaz Capital S.A., 5.999%, 2021 (n)		796,000		879,381
Gaz Capital S.A., 3.85%, 2020 (n)		200,000		195,946
Lukoil International Finance B.V., 3.416%, 2018 (n)		200,000		200,000
Lukoil International Finance B.V., 4.563%, 2023 (n)		226,000		218,655
Rosneft, 4.199%, 2022 (n)		200,000		191,000
VTB Capital S.A., 6.465%, 2015 (n)		154,000		164,675

			$	2,396,272

Portfolio of Investments (unaudited) – continued


Issuer	Shares/Par		Value ($)
Bonds - continued
Foreign Bonds - continued
Slovakia - 0.5%
Republic of Slovakia, 4.375%, 2022 (n)	$	909,000	$	970,539

South Africa - 0.1%
Myriad International Holdings B.V., 6.375%, 2017 (n)	$	174,000	$	195,089

United Kingdom - 0.3%
Diageo Capital PLC, 5.75%, 2017	$	520,000	$	609,400
Total Foreign Bonds			$	17,332,120
Total Bonds (Identified Cost, $211,392,052)			$	228,401,287

Money Market Funds - 12.5%
MFS Institutional Money Market Portfolio, 0.12%, at Cost and Net Asset Value (v)		26,684,403	$	26,684,403
Total Investments (Identified Cost, $238,076,455)			$	255,085,690

Other Assets, Less Liabilities - (19.9)%				(42,423,356	)
Net Assets - 100.0%			$	212,662,334

(f)	All or a portion of the security has been segregated as collateral for open futures contracts.

(n)

Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $7,011,716 representing 3.3% of net assets.

(v)	Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

FRN

Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.

PLC

Public Limited Company

REIT

Real Estate Investment Trust

STRIPS

Separate Trading of Registered Interest and Principal of Securities

TBA

To Be Announced

Portfolio of Investments (unaudited) – continued

Derivative Contracts at 5/31/13

Futures Contracts Outstanding at 5/31/13

Description

Currency

Contracts

Value

Expiration
Date

Unrealized
Appreciation
(Depreciation)

Asset Derivatives

Interest Rate Futures Contracts

U.S. Treasury Bond 30 yr (Short)

USD

$6,581,469

September - 2013

$31,184

At May 31, 2013, the fund had liquid securities with an aggregate value of $123,159 to cover any commitments for certain derivative contracts.

See Notes to Financial Statements

Financial Statements

STATEMENT OF ASSETS AND LIABILITIES

At 5/31/13 (unaudited)

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.


Assets
Investments-
Non-affiliated issuers, at value (identified cost, $211,392,052)	$228,401,287
Underlying affiliated funds, at cost and value	26,684,403
Total investments, at value (identified cost, $238,076,455)	$255,085,690
Receivables for
Daily variation margin on open futures contracts	22,031
Interest	1,594,397
Other assets	18,078
Total assets	$256,720,196
Liabilities
Payables for
Distributions	$86,258
TBA purchase commitments	43,728,351
Payable to affiliates
Investment adviser	5,550
Transfer agent and dividend disbursing costs	16,216
Payable for independent Trustees’ compensation	95,022
Accrued expenses and other liabilities	126,465
Total liabilities	$44,057,862
Net assets	$212,662,334
Net assets consist of
Paid-in capital	$215,759,653
Unrealized appreciation (depreciation) on investments	17,040,419
Accumulated net realized gain (loss) on investments	(15,228,812	)
Accumulated distributions in excess of net investment income	(4,908,926	)
Net assets	$212,662,334
Shares of beneficial interest outstanding	32,601,117
Net asset value per share (net assets of $212,662,334 / 32,601,117 shares of beneficial interest outstanding)	$6.52

See Notes to Financial Statements

Financial Statements

STATEMENT OF OPERATIONS

Six months ended 5/31/13 (unaudited)

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.


Net investment income
Income
Interest	$4,087,620
Dividends from underlying affiliated funds	18,163
Total investment income	$4,105,783
Expenses
Management fee	$592,029
Transfer agent and dividend disbursing costs	51,097
Administrative services fee	19,210
Independent Trustees’ compensation	20,499
Stock exchange fee	14,280
Custodian fee	16,660
Shareholder communications	69,141
Audit and tax fees	36,820
Legal fees	2,232
Miscellaneous	11,281
Total expenses	$833,249
Fees paid indirectly	(87	)
Reduction of expenses by investment adviser	(350	)
Net expenses	$832,812
Net investment income	$3,272,971
Realized and unrealized gain (loss) on investments
Realized gain (loss) (identified cost basis)
Investments	$1,500,648
Futures contracts	299,564
Net realized gain (loss) on investments	$1,800,212
Change in unrealized appreciation (depreciation)
Investments	$(8,611,317	)
Futures contracts	55,216
Net unrealized gain (loss) on investments	$(8,556,101	)
Net realized and unrealized gain (loss) on investments	$(6,755,889	)
Change in net assets from operations	$(3,482,918	)

See Notes to Financial Statements

Financial Statements

STATEMENTS OF CHANGES IN NET ASSETS

These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.


Change in net assets	Six months ended 5/31/13 (unaudited)			Year ended 11/30/12
From operations
Net investment income		$3,272,971			$7,596,035
Net realized gain (loss) on investments		1,800,212			1,843,739
Net unrealized gain (loss) on investments		(8,556,101	)		2,533,835
Change in net assets from operations		$(3,482,918	)		$11,973,609
Distributions declared to shareholders
From net investment income		$(3,272,971	)		$(10,314,471	)
From tax return of capital		—			(6,130,505	)
From other sources		(4,714,220	)		—
Total distributions declared to shareholders		$(7,987,191	)		$(16,444,976	)
Change in net assets from fund share transactions		$190,620			$804,526
Total change in net assets		$(11,279,489	)		$(3,666,841	)
Net assets
At beginning of period		223,941,823			227,608,664
At end of period (including accumulated distributions in excess of net investment income of $4,908,926 and $194,706, respectively)		$212,662,334			$223,941,823

See Notes to Financial Statements

Financial Statements

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.


	Six months ended 5/31/13 (unaudited)			Years ended 11/30
				2012			2011			2010			2009			2008

Net asset value, beginning of period		$6.88			$7.01			$7.17			$7.27			$7.01			$7.35
Income (loss) from investment operations
Net investment income (d)		$0.10			$0.23			$0.26			$0.30			$0.32			$0.33
Net realized and unrealized gain (loss) on investments and foreign currency		(0.21	)		0.15			0.09			0.12			0.46			(0.15	)
Total from investment operations		$(0.11	)		$0.38			$0.35			$0.42			$0.78			$0.18
Less distributions declared to shareholders
From net investment income		$(0.10	)		$(0.32	)		$(0.32	)		$(0.32	)		$(0.35	)		$(0.34	)
From tax return of capital		—			(0.19	)		(0.19	)		(0.20	)		(0.17	)		(0.18	)
From other sources		(0.15	)		—			—			—			—			—
Total distributions declared to shareholders		$(0.25	)		$(0.51	)		$(0.51	)		$(0.52	)		$(0.52	)		$(0.52	)
Net asset value, end of period (x)		$6.52			$6.88			$7.01			$7.17			$7.27			$7.01
Market value, end of period		$6.17			$6.76			$6.85			$7.15			$7.28			$7.21
Total return at market value (%)		(5.28	)(n)		6.12			3.36			5.54			8.45			17.96
Total return at net asset value (%) (j)(r)(s)(x)		(1.65	)(n)		5.54			5.48			5.98			11.39			2.83
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)		0.76	(a)		0.78			0.80			0.83			0.83			0.94
Expenses after expense reductions (f)		0.76	(a)		0.78			0.80			0.80			0.80			0.80
Net investment income		3.00	(a)		3.36			3.75			4.19			4.48			4.55
Portfolio turnover		63	(n)		41			14			26			21			31
Net assets at end of period (000 omitted)		$212,662			$223,942			$227,609			$232,865			$234,591			$225,179

(a)	Annualized.

(d)	Per share data is based on average shares outstanding.

(f)	Ratios do not reflect reductions from fees paid indirectly, if applicable.

(j)	Total return at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than the total return at market value.

(n)	Not annualized.

(r)	Certain expenses have been reduced without which performance would have been lower.

Financial Highlights – continued

(s)	From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

(x)	The net asset values per share and total returns at net asset value per share have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.

See Notes to Financial Statements

NOTES TO FINANCIAL STATEMENTS

(unaudited)

(1) Business and Organization

MFS Government Markets Income Trust (the fund) is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company.

(2) Significant Accounting Policies

General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.

In January 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-01 (“ASU 2013-01”) entitled Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities which is intended to clarify the scope of Accounting Standards Update 2011-11 (“ASU 2011-11”), Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities. Consistent with the effective date for ASU 2011-11, ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2013-01 limits the scope of ASU 2011-11’s disclosure requirements on offsetting to financial assets and financial liabilities related to derivatives, repurchase and reverse repurchase agreements, and securities lending and securities borrowing transactions. Although still evaluating the potential impact of these two ASUs to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.

In June 2013, FASB issued Accounting Standards Update 2013-08 Financial Services – Investment Companies (Topic 946) – Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”) which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. ASU 2013-08 sets forth a methodology for determining whether an entity should be characterized as an investment company and prescribes fair value accounting for an investment company’s non-controlling ownership interest in another investment company. FASB has determined that a fund registered under the Investment Company Act of 1940

Notes to Financial Statements (unaudited) – continued

automatically meets ASU 2013-08’s criteria for an investment company. Although still evaluating the potential impacts of ASU 2013-08 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.

Investment Valuations – Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price as provided by a third-party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as provided by a third-party pricing service on the market on which such futures contracts are primarily traded. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same

Notes to Financial Statements (unaudited) – continued

investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as futures contracts. The following is a summary of the levels used as of May 31, 2013 in valuing the fund’s assets or liabilities:


Investments at Value	Level 1		Level 2		Level 3		Total
U.S. Treasury Bonds & U.S. Government Agency & Equivalents		$—		$79,690,889		$—		$79,690,889
Non-U.S. Sovereign Debt		—		12,135,770		—		12,135,770
Municipal Bonds		—		5,003		—		5,003
U.S. Corporate Bonds		—		16,871,705		—		16,871,705
Residential Mortgage-Backed Securities		—		106,890,707		—		106,890,707
Commercial Mortgage-Backed Securities		—		7,610,863		—		7,610,863
Foreign Bonds		—		5,196,350		—		5,196,350
Mutual Funds		26,684,403		—		—		26,684,403
Total Investments		$26,684,403		$228,401,287		$—		$255,085,690

Other Financial Instruments
Futures Contracts		$ 31,184		$—		$—		$31,184

For further information regarding security characteristics, see the Portfolio of Investments.

Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.

Derivatives – The fund uses derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to

Notes to Financial Statements (unaudited) – continued

increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.

The derivative instruments used by the fund were futures contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.

The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at May 31, 2013 as reported in the Statement of Assets and Liabilities:

(a)	The value of futures contracts outstanding includes cumulative appreciation (depreciation) as reported in the fund’s Portfolio of Investments. Only the current day variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities.

The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended May 31, 2013 as reported in the Statement of Operations:


Risk	Futures Contracts
Interest Rate		$299,564

The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended May 31, 2013 as reported in the Statement of Operations:


Risk	Futures Contracts
Interest Rate		$55,216

Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty or a termination of the agreement, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable

Notes to Financial Statements (unaudited) – continued

by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty or a termination of the agreement, the ISDA Master Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives (i.e., futures contracts and exchange-traded options) while collateral terms are contract specific for over-the-counter traded derivatives (i.e., forward foreign currency exchange contracts, swap agreements and over-the-counter options). For derivatives traded under an ISDA Master Agreement, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash collateral that has been segregated to cover obligations of the fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash. Securities collateral pledged for the same purpose, if any, is noted in the Portfolio of Investments.

Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.

The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S.

Notes to Financial Statements (unaudited) – continued

generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.

The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in the Portfolio of Investments. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. TBA purchase commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy disclosure. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended May 31, 2013, is shown as a reduction of total expenses in the Statement of Operations.

Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period.

Distributions to shareholders are recorded on the ex-dividend date. The fund seeks to pay monthly distributions based on an annual rate of 7.25% of the fund’s average monthly net asset value. As a result, distributions may exceed actual earnings which may result in a tax return of capital or, to the extent the fund has long-term gains, distributions of current year long-term gains may be recharacterized as ordinary income. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments

Notes to Financial Statements (unaudited) – continued

have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions from other sources, in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

Book/tax differences primarily relate to expiration of capital loss carryforwards, amortization and accretion of debt securities, and straddle loss deferrals.

The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:


	11/30/12
Ordinary income (including any short-term capital gains) (a)		$10,314,471
Tax return of capital (b)		6,130,505
Total distributions		$16,444,976
(a) Included in the fund’s distributions from ordinary income is $1,780,698 in excess of investment company taxable income which, in accordance with applicable U.S. tax law, is taxable to shareholders as ordinary income distributions. (b) Distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital.

The federal tax cost and the tax basis components of distributable earnings were as follows:


As of 5/31/13
Cost of investments	$244,048,663
Gross appreciation	13,659,571
Gross depreciation	(2,622,544	)
Net unrealized appreciation (depreciation)	$11,037,027

As of 11/30/12
Capital loss carryforwards	(8,071,608	)
Other temporary differences	(3,171,157	)
Net unrealized appreciation (depreciation)	19,615,555

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized for fund fiscal years beginning after November 30, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses (“post-enactment losses”). Previously, net capital losses were carried forward for eight years and treated as short-term losses (“pre-enactment losses”). As a transition rule, the Act requires that all post-enactment net capital losses be used before pre-enactment net capital losses.

Notes to Financial Statements (unaudited) – continued

As of November 30, 2012, the fund had capital loss carryforwards available to offset future realized gains. Such pre-enactment losses expire as follows:


11/30/14	$(1,612,467	)
11/30/15	(5,364,143	)
11/30/16	(766,085	)
11/30/17	(129,764	)
11/30/18	(199,149	)
Total	$(8,071,608	)

(3) Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.32% of the fund’s average daily net assets and 5.33% of gross income. Gross income is calculated based on tax elections that generally include the accretion of discount and exclude the amortization of premium, which may differ from investment income reported in the Statement of Operations. MFS has agreed to reduce its management fee to the lesser of the contractual management fee as set forth above or 0.85% of the average daily net assets. This written agreement will continue until modified by the Board of Trustees, but such agreement will continue at least until November 30, 2014. The management fee, from net assets and gross income, incurred for the six months ended May 31, 2013 was equivalent to an annual effective rate of 0.54% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total fund operating expenses do not exceed 0.80% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2014. For the six months ended May 31, 2013, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.

Transfer Agent – The fund engages Computershare Trust Company, N.A. (“Computershare”) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the six months ended May 31, 2013, these fees paid to MFSC amounted to $19,483.

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended May 31, 2013 was equivalent to an annual effective rate of 0.0176% of the fund’s average daily net assets.

Notes to Financial Statements (unaudited) – continued

Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.

Prior to December 31, 2001, the fund had an unfunded defined benefit plan (“DB plan”) for independent Trustees. As of December 31, 2001, the Board took action to terminate the DB plan with respect to then-current and any future independent Trustees, such that the DB plan covers only certain of those former independent Trustees who retired on or before December 31, 2001. Effective January 1, 2002, accrued benefits under the DB plan for then-current independent Trustees who continued were credited to an unfunded retirement deferral plan (the “Retirement Deferral plan”), which was established for and exists solely with respect to these credited amounts, and is not available for other deferrals by these or other independent Trustees. Although the Retirement Deferral plan is unfunded, amounts deferred under the plan are periodically adjusted for investment experience as if they had been invested in shares of the fund. The DB plan resulted in a pension expense of $1,231 and the Retirement Deferral plan resulted in an expense of $251. Both amounts are included in independent Trustees’ compensation for the six months ended May 31, 2013. The liability for deferred retirement benefits payable to certain independent Trustees under both plans amounted to $94,076 at May 31, 2013, and is included in “Payable for independent Trustees’ compensation” in the Statement of Assets and Liabilities.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended May 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $827 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $350, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.

Notes to Financial Statements (unaudited) – continued

(4) Portfolio Securities

Purchases and sales of investments, other than short-term obligations, were as follows:


	Purchases		Sales
U.S. Government securities		$140,369,689		$142,278,064
Investments (non-U.S. Government securities)		$4,408,118		$3,887,580

(5) Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The Trustees have authorized the repurchase by the fund of up to 10% annually of its own shares of beneficial interest. During the six months ended May 31, 2013 and the year ended November 30, 2012, the fund did not repurchase any shares. Other transactions in fund shares were as follows:

Six months ended
5/31/13

Year ended
11/30/12

Shares

Amount

Shares

Amount

Shares issued to shareholders in
reinvestment of distributions

28,166

$190,620

115,339

$804,526

(6) Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended May 31, 2013, the fund’s commitment fee and interest expense were $648 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.

(7) Transactions in Underlying Affiliated Funds-Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:


Underlying Affiliated Fund	Beginning Shares/Par Amount		Acquisitions Shares/Par Amount		Dispositions Shares/Par Amount			Ending Shares/Par Amount
MFS Institutional Money Market Portfolio		13,893,863		42,841,469		(30,050,929	)		26,684,403

Underlying Affiliated Fund	Realized Gain (Loss)		Capital Gain Distributions		Dividend Income			Ending Value
MFS Institutional Money Market Portfolio		$—		$—		$18,163			$26,684,403

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of MFS Government Markets Income Trust:

We have reviewed the accompanying statement of assets and liabilities of MFS Government Markets Income Trust (the “Fund”), including the portfolio of investments, as of May 31, 2013, and the related statement of operations, changes in net assets, and financial highlights for the six-month period ended May 31, 2013. These interim financial statements and financial highlights are the responsibility of the Fund’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements and financial highlights referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of changes in net assets for the year ended November 30, 2012, and the financial highlights for each of the five years in the period ended November 30, 2012, and in our report dated January 15, 2013, we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.

DELOITTE & TOUCHE LLP

Boston, Massachusetts

July 17, 2013

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Closed-End Funds” in the “Products” section of the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund voted proxies relating to portfolio securities during the twelve-month period ended June 30, 2012 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:

Public Reference Room

Securities and Exchange Commission

100 F Street, NE, Room 1580

Washington, D.C. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Closed-End Funds” in the “Products” section of mfs.com.

LOGO

CONTACT US

TRANSFER AGENT, REGISTRAR, AND

DIVIDEND DISBURSING AGENT

CALL

1-800-637-2304

9 a.m. to 5 p.m. Eastern time

WRITE

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

New York Stock Exchange Symbol: MGF

ITEM 2.

CODE OF ETHICS.

During the period covered by this report, the Registrant has not amended any provision in its Code of Ethics (the “Code”) that relates to an element of the Code’s definitions enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable for semi-annual reports.

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable for semi-annual reports.

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable for semi-annual reports.

ITEM 6.

SCHEDULE OF INVESTMENTS

A schedule of investments for each series of the Registrant is included as part of the report to shareholders of such series under Item 1 of this Form N-CSR.

ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable for semi-annual reports.

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

There were no changes during this period.

ITEM 9.

PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

MFS Government Markets Income Trust


Period	(a) Total number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs
12/01/12-12/31/12	0	N/A	0	3,248,581
1/01/13-1/31/13	0	N/A	0	3,248,581
2/01/13-2/28/13	0	N/A	0	3,248,581
3/01/13-3/31/13	0	N/A	0	3,260,111
4/01/13-4/30/13	0	N/A	0	3,260,111
5/01/13-5/31/13	0	N/A	0	3,260,111

*Total*	0		0

Note: The Board of Trustees approves procedures to repurchase shares annually. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on March 1^st of each year. The programs conform to the conditions of Rule 10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (March 1 through the following February 28) to 10% of the Registrant’s outstanding shares as of the first day of the plan year (March 1). The aggregate number of shares available for purchase for the March 1, 2013 plan year is 3,260,111.

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.

ITEM 11.

CONTROLS AND PROCEDURES.

(a)

Based upon their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)

There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

ITEM 12.

EXHIBITS.

(a)	File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated.

(1)

Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.

(2)

A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto.

(3)

Notices to Trust’s common shareholders in accordance with Investment Company Act Section 19(a) and Rule 19a-1.

(b)

If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto.

Notice

A copy of the Amended and Restated Declaration of Trust of the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant MFS GOVERNMENT MARKETS INCOME TRUST


By (Signature and Title)*		JOHN M. CORCORAN
		John M. Corcoran, President

Date: July 17, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By (Signature and Title)*		JOHN M. CORCORAN
		John M. Corcoran, President (Principal Executive Officer)

Date: July 17, 2013


By (Signature and Title)*		DAVID L. DILORENZO
		David L. DiLorenzo, Treasurer (Principal Financial Officer and Accounting Officer)

Date: July 17, 2013

*	Print name and title of each signing officer under his or her signature.

Fair Value (a)

Derivative Contracts

Asset Derivatives

Interest Rate

Interest Rate Futures