With the S&P outlook downgrade for the United States, do you still consider the riskfree rate to be the treasury bond or would you now consider it to be some alpha over the treasury bond?
Stacey Warren - Expert brainly.com
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Personal opinion: I would still consider the treasury bond as risk free. Do you really think that today, because of S&P downgrade, there is more chance of default ? I do not think so...
Please others, comment on that question, it is interesting. I am curious to receive any theoretical answer.
I agree that Treasuries will still be viewed as the 'de facto' risk free rate. But, with the forward looking negativity... do we need to start thinking about a risk premium for USD (i.e. dollars) similar to how we do for other countries/currencies? At our current debt trajectory, I feel a solid argument could be made for 'yes'. But then I remember our Fed has no problem printing endless supplies of money. Sigh.
We should not only be considering the risk of default but also other risks. the RFR should be the same because there is nothing less risky i.e. it is the minimum possible amount of risk, even if not 100% guaranteed. you could say that the RFR is the return for Systematic Risk.