A risk-free bond is a theoretical bond that repays interest and principal with absolute certainty. The rate of return would be the risk-free interest rate. In practice, government bonds are treated as risk-free bonds, as governments can raise taxes or indeed print money to repay their domestic currency debt.
For instance, United States Treasury notes and United States Treasury bonds are considered risk-free bonds, even though investors in United States Treasury securities do face a negligible amount of credit risk. An example of this credit risk was shown by Russia, which defaulted on its domestic debt in 1998.
Read more about Risk-free Bond: Application
Famous quotes containing the word bond:
“Man’s characteristic privilege is that the bond he accepts is not physical but moral; that is, social. He is governed not by a material environment brutally imposed on him, but by a conscience superior to his own, the superiority of which he feels. Because the greater, better part of his existence transcends the body, he escapes the body’s yoke, but is subject to that of society.”
—Emile Durkheim (1858–1917)