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Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't a
by schrodinger 6y ago
Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time. Although I guess you can argue that "tying up" the money is a form a risk, and almost certainly a luxury some poor people cannot afford.
- econcon 6y ago>Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time It's not risk free, there is nothing that stops government from creating inflation so they can pay off the debt for in inflated dollars. Today, central bank alone doesn't have power to make create money out of thin air. Government guaranteeing loans from banks to corporate players and projects is creating inflation. It's good for politicians as they can pay off their expensive mistakes in cheap money.
- schrodinger 6y agoTreasury bills are considered "risk-free", although pedantically of course nothing is actually free of risk. https://www.investopedia.com/terms/r/risk-freereturn.asp https://www.investopedia.com/terms/r/risk-freereturn.asp
- jl2718 6y agoA bond has a NPV like any other instrument. The purchase cost of a TIPS can be any price, including above coupon. TIPS are especially sensitive to interest rate risk because higher interest rates drop both the underlying asset value, and the inflation index. So it’s basically just a double-leverage T-note.