Talk:Government bond
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Calling all government bonds risk-free seems incorrect to me. In quantitative financial research, the term risk-free is appropriate for short term government debt, being Treasury bills in the U.S. This is so because you may expect the short term government bills to be repaid. Contributed 09:10, 17 October 2005 by User:JanRog
A few things :
- the only credit instruments that are actually 100% risk-free are those that have in point of fact been fully repaid; any live debt, ie one with a non-negative maturity, is risky;
- there is such a thing as the term structure of interest rates. Using the same rate for all maturities is wide off the mark, except in the ultra-rare case of a flat yield curve;
- in each currency, the best approximation one has for risk free interest rates rate for non-negative maturities comes from the more liquid government bonds, provided the said government has not over-issued; as governments enjoy fiscal power, their credit in their own currency is in fact quite good;
- using only one, "risk free" or not, interest rate for all maturities should be seen more as an indication of a quantitative model's limitations than as an indication that other interest rates are risky.
Htournyol 16:02, 21 October 2005 (UTC)