The True Risk-free Rate: A Gateway to Bond Risk

George Y. Nie
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George Y. Nie: Concordia University

No 2dazg, SocArXiv from Center for Open Science

Abstract: This study argues that a future payment’s risk approaches zero as maturity approaches zero. We employ two factors to model the risk-free rate (which is captured by the central bank’s short-term interest rate) that the market expects the current monetary policy to move towards the neutral level over a certain period. Our 3-factor final model thus splits recent US and Canada T-bill yields into the risk and risk-free rate, explaining 97% of the yields, providing a gateway to bond risk.

Date: 2024-06-25
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:2dazg

DOI: 10.31219/osf.io/2dazg

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