Are long-term U.S. government bonds risk-free?

Bonds / Fixed Income
Answers
Sort By:
Most Helpful
October 2016
85% of people found this answer helpful

 

Bonds, in general, have multiple risks, but in this case we will explore the two main risks. Default risk and Interest Rate Risk.

Generally speaking, US government bonds are considered risk free, however that is simply looking at Default Risk. Therefore, when US government bonds are referred to as risk free, it should technically say Default risk free. (This may change one day but as of now this remains true).

However bonds do fluctuate in price and that can be attributed to (amongst other things) interest rates. Typically bond prices have an inverse relationship to Interest rates. If Interest rates increase, the price of a bond decreases.

In summary, if you are holding the US government bond to maturity, essentially it is considered risk free, however, if you decide to sell the bond before maturity the price could be lower (or higher) than the price you purchased the bond. 

December 2016
October 2016
October 2016
October 2016