Is there any difference between Default-Free (bond) & Risk-Free (bond) ?
I don’t think there is anything called Risk-Free bond. You do have risk-free rate , not same as risk free bond ( which would imply that it doesn’t even have interest rate risk ).
If not for bond, Default-Free = Risk-Free ?
Still not same: Default-Free = Coupons and Principle guaranteed by full faith, so only duration risk present, not credit risk . Because of GSE’s ultimate backstopping MBS securities , they may not have credit risk but still could have prepayment risk, i.e. default free but not free of prepayment risk Risk-Free = No such thing exists
janakisri, Thanks !
A short term treasury bill is considered risk free since it is essentially default free and the short term nature also means not as impacted by interest rates. I would say that all Treasury bonds/bills would be considered default free.
There is such thing as the “risk free” interest rate. That is, if you buy a treasury note paying 1%, you are guaranteed that 1%. I guess you could also flip this to mean that the bond is also risk free. It really depends on your definition.