Risk-free Bonds

A risk-free bond is a theoretical bond that repays interest and principal with absolute certainty. 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, U.S. Treasury notes and bonds are considered risk-free bonds, even though investors in U.S. Treasury securities do face a negligible amount of credit risk. That this credit risk is not always negligible, is shown by the example of Russia that defaulted on its domestic debt in 1998.