James_McMann

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Risk-Free Bonds Aren't

I just wanted to point out the fact that foreign governments have defaulted on debt does not prove this point. With a US treasury security you are promised to be paid a certain amount of US dollars at a certain time. With the exception of certain inflation protected securities, no promises are made regarding inflation. The US government controls the ability to tax and PRINT dollars so I think the odds are next to 0 that the politicians would default on these debts when they could just print away their problem. The term risk-free asset refers to the default risk, of course there is still interest rate risk, inflation risk, reinvestment risk and others. In this context I feel that the term risk-free is for all intents and purposes accurate.