Risk-Free Asset

No asset can ever be guaranteed to be risk-free, but the concept of risk-free debt is deeply embedded in financial markets as short-hand for high-quality liquid debt that retains its value over time, including during times of market stress. In fact, certain types of risk-free debt can reasonably be expected to increase in value during times of market stress as market participants seek out its safety to protect them from market volatility. The notion of risk-free lies at the heart of the risk-return price-discovery process in financial markets. The benchmark risk-free asset is a government bond. Government bond yield curves are the base on which all other debt in that government’s currency is calibrated.