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The End of the Risk Free Rate The End of The Risk Free Rate discusses how to look at the investing world in a different way. The "risk free rate" is a feature of a fiat currency system where a reference or benchmark is used to value financial assets. The 2008 financial crisis and subsequent European sovereign crisis of 2010-2012 has ...More
shown what was once assumed to be a stable investment like a T-bill or government bond has become a volatile instrument with credit characteristics. This may have changed the way risk premiums should be evaluated. When looking at the risk free rate, it has components that were not thought of prior to the 2008 crisis. Restructuring, social-political developments, private sector involvement, financial repression, and interest rate volatility are elements of a "new risk free rate". Investors should be aware of these elements when evaluating corporate, municipal, mortgage backed, high yield bonds as well as equities. The risk premium earned is perhaps at a different level and this book shows with practical examples a quantification. Another implication is there are no "alternative" risk free rates. Often said that as government bonds are less appealing due to low returns, there are alternatives like corporate bonds or emerging market sovereign debt perceived to be "safer". This book demonstrates with extensive analysis that is not the case and how investors should use this information when judging investments. The End of the Risk Free Rate does not mean the end of investing in bonds. The book makes neither the case that bonds are no longer suitable investments. On the contrary, The End of the Risk Free Rate provides a framework and practical analysis investors can arm themselves with to better understand the complexity of the investment universe that is functioning no longer on the premise of something that is "risk free".