Many Happy Returns
Are Government Bonds Really Risk-Free?
Oct 18, 2023
Exploring the risk of government bonds defaulting and their status as the world's safest asset. Discussing the recent downgrade of US debt and its implications. Examining how the credit spread reflects default risk. Understanding the importance of the risk-free rate in finance and the role of central banks. Delving into the possibility of sovereign defaults in developed markets. Exploring the concern over government default risk and comparing bonds to cash. Explaining duration risk and the potential for higher returns from bonds.
42:15
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Quick takeaways
- Government bonds, once considered risk-free, are now being questioned due to rising national debts and dwindling credit ratings.
- The perception of government bonds as risk-free has been changing, with the number of AAA-rated countries decreasing over time.
Deep dives
Risk-free assumption of government bonds questioned
The podcast discusses the notion of government bonds being considered the world's safest asset and examines the rising national debts and dwindling credit ratings that raise doubts about their status as risk-free investments. The downgrade of the US debt by Fitch and the historical instances of defaults by governments are explored, highlighting the changing perception of risk associated with government bonds.
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