Every finance textbook I have read so far, implicitly assumes that US debt is default free. There is a whole structure of global finance based on this assumption.
Unfortunately, now we have to question it. And I don't know where we go from here. What is the/a risk free rate? How do you price in the fact that a guy who declared bankruptcy four times, or maybe six times, is in charge of US finances? There are many other countries who have never defaulted on their bonds and maybe that is the only way to invest in bonds right now. TL; DR, I think the assumption that US debt is default free, is dead and we need to add a default premium to all US treasuries. I just don't know how to compute that premium.
(As a primer, nominal interest rate for any bond = real interest rate + inflation + default premium + liquidity premium + maturity premium).

Bond Investing FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.