What Does it Mean to Say the Treasury Market is Risk Free?

The U.S. Treasury market is supposed to be boring and risk free. As a result, it is largely ignored in the literature on sovereign debt, other than being used as a measure of the risk free rate in empirical studies. Our guest on this episode, Yesha Yadav (Vanderbilt Law), disagrees. While it is true that the U.S. government is relatively unlikely to default in payment (although that hasn't stopped it from doing so on a couple of famous occasions in the past), Yesha explains that there in fact are a host of risks lurking beneath the calm surface of the U.S. Treasury market. Yesha is one of the foremost experts in financial and securities regulation and has written extensively about risks stemming from lightly-regulated high frequency trading and other sources. She joins us to talk about why it's a mistake to think of treasury markets as risk free, the pitfalls of debt buybacks, and other topics.

Producer: Leanna Doty