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.
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Famous quotes containing the word bond:
“I therefore, the prisoner in the Lord, beg you to lead a life worthy of the calling to which you have been called, with all humility and gentleness, with patience, bearing with one another in love, making every effort to maintain the unity of the Spirit in the bond of peace.”
—Bible: New Testament, Ephesians 4:1-3.