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the risk-free bonds have failed numerous times. Often they wiped out investors entirely. Full list: https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises

the risk-free bonds have failed numerous times. Often they wiped out investors entirely. Full list: https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises They cannot print value, only paper.

lottin 6y ago
And you'll find these failed governments bonds were paying a considerable risk premium, i.e. a spread over the risk-free rate.
- ArtTimeInvestor 6y ago
  Not necessarily. Since the government can print the money they lend, they can dictate the risk premium. They can keep it as low as they want. Italy and some other European countries are basically broke. But they pay less interest than the USA.
  - lottin 6y ago
    The risk premium is the interest rate spread that investors demand. Not clear how the government can "dictate it" by printing money.
    - ArtTimeInvestor 6y ago
      The government prints money and buys government bonds with it. And other assets. When you have infinite amounts of money, you can dictate the risk premium.
      - lottin 6y ago
        > When you have infinite amounts of money, you can dictate the risk premium. But how? If you're an investor who is considering buying government bonds, how can the government dictate the interest rate that you are willing to accept in return for buying the bonds?
        ArtTimeInvestor 6y ago
        The government is an investor. If the government buys enough bonds at X% interest rate, that is the market rate.
        lottin 6y ago
        Sorry, that's not how it works. The governments runs an auction where the bonds are sold to investors. That sets the market rate. The government would not buy its own bonds in the auction (it wouldn't make sense) and cannot force investors to buy the bonds at a particular rate.
        cinquemb 6y ago
        Yet, i've seen defi protocols that tried to fix the rate + maturity of said "bonds" they were offering and be complete baffled why demand for them changed when market conditions changed… wish there were more voices like yours in the sea of fecal matter floating around in the ecosystem…
        ArtTimeInvestor 6y ago
        In Europe, the government does buy its own bonds. Via the central bank. They print the money. Hold it for a few days. Then buy government bonds with it. Read what the european central bank (ECB) writes about it: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1956.en.pdf https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1956.en.pdf https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.... Search for "government bonds" in these papers.
        lottin 6y ago
        The central bank buys bonds in the secondary market, and any effect on the risk premium is only indirect (investors perceive the bonds as being safer). This is completely different from the government "dictating the risk premium". The risk premium is the spread deemed necessary by the market to compensate for credit risk, and as such it can't be dictated by anyone.

lottin 6y ago

And you'll find these failed governments bonds were paying a considerable risk premium, i.e. a spread over the risk-free rate.

ArtTimeInvestor 6y ago
Not necessarily. Since the government can print the money they lend, they can dictate the risk premium. They can keep it as low as they want. Italy and some other European countries are basically broke. But they pay less interest than the USA.
- lottin 6y ago
  The risk premium is the interest rate spread that investors demand. Not clear how the government can "dictate it" by printing money.
  - ArtTimeInvestor 6y ago
    The government prints money and buys government bonds with it. And other assets. When you have infinite amounts of money, you can dictate the risk premium.
    - lottin 6y ago
      > When you have infinite amounts of money, you can dictate the risk premium. But how? If you're an investor who is considering buying government bonds, how can the government dictate the interest rate that you are willing to accept in return for buying the bonds?
      - ArtTimeInvestor 6y ago
        The government is an investor. If the government buys enough bonds at X% interest rate, that is the market rate.
        lottin 6y ago
        Sorry, that's not how it works. The governments runs an auction where the bonds are sold to investors. That sets the market rate. The government would not buy its own bonds in the auction (it wouldn't make sense) and cannot force investors to buy the bonds at a particular rate.
        cinquemb 6y ago
        Yet, i've seen defi protocols that tried to fix the rate + maturity of said "bonds" they were offering and be complete baffled why demand for them changed when market conditions changed… wish there were more voices like yours in the sea of fecal matter floating around in the ecosystem…
        ArtTimeInvestor 6y ago
        In Europe, the government does buy its own bonds. Via the central bank. They print the money. Hold it for a few days. Then buy government bonds with it. Read what the european central bank (ECB) writes about it: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1956.en.pdf https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1956.en.pdf https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.... Search for "government bonds" in these papers.
        lottin 6y ago
        The central bank buys bonds in the secondary market, and any effect on the risk premium is only indirect (investors perceive the bonds as being safer). This is completely different from the government "dictating the risk premium". The risk premium is the spread deemed necessary by the market to compensate for credit risk, and as such it can't be dictated by anyone.