US Treasuries:No More Assumed to Be Risk-Free Rate of Return
In Economics and Finance, there is the concept of risk-adjusted rate of return on investment. When Investment analysts calculate risk-adjusted rate of return on investment, formulas like the Sharpe Ratio and the Sortino Ratio are widely used. These have an input component called the 'risk-free rate of return. (see Sharpe Ratio formula in image below). For decades, because of the dominance of the USD in trade and its status as a safe heaven currency, and because the size of USD Treasuries market is so huge (much bigger than all the stock markets put together) and therefore infinitely liquid, the risk-free rate of return was assumed to be US Treasuries. However, the current antics of the MAGA Man has caused the USD to plummet, and the yield on US Treasuries to rise (which means their prices fall. Bond prices fall when yields rise) Would you hold US assets denominated in USD? So US Treasuries are no longer risk-free and the classical texbooks on Economics and Finance nee...