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how a well diversified modern portfolio management strategy would have managed in 1912https://www.ibtimes.co.uk/holy-grail-hedge-fund-strategy-handle-black-swan-size-world-war-i-1576915 …
For government bonds to be "risk-free", an investor would have to be a perfect fiscal prophet, for example an unerring predictor of who is going to win the next war. These bonds, among those of many other governments large and small, lost essentially all their value.pic.twitter.com/KoLSbs5Awd
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This is a pure Strawman, no one claims all govies are risk free, 192 states, many of which have bonds no one would use as a benchmark, UST are de facto risk free because the debt is denominated in a reserve currency, which the US controls, it can never be coerced to default
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Reserve currency status can change, and indeed these days there are prominent central bankers in the U.S.'s closest allies trying to change it.
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Our concept of liquidity - which normally means "convertibility into cash" - is inadequate when considering political catastrophes across time ... thankfully there have been fewer and fewer political catastrophes. Menger had a better term - "saleable" - in German, Absatzfahigkeit
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Market liquidity is not convertibility to cash, this is the definition used among people unfamiliar with financial markets, liquidty is the ability to avoid market impact, to buy or sell without moving the price
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When it is denominated in currency that the government can print, that is no repayment risk. There is inflation risk that you will be paid back in worthless currency though.
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'risk-free' is an illusion
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Bonds risk free: technically an oxymoron
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"I AM the Alpha and the Omega, beginning and end, saith the Lord, who is and who was and who is to come, the Almighty." Rev. 1:8
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Does not matter, what we learn in school is gov bonds are risk-free... so it must be so.
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that's not what they teach in business schools where 'riskfree' is equated with g-d, but we know it's only backed by full faith in and credit of our elected officials
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What asset is closest to being “risk free”?
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And, of course, apart from losing a war, there is the more mundane bankrupting of oneself.
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Love those old war bond posters.
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