Musings on Markets: Risk-Free Rates, Sovereign Default Risk, and the Trust Deficit

This article examines the erosion of the concept of risk-free investments following sovereign credit downgrades, particularly the Fitch downgrade of US debt from AAA to AA+. The author explores how to measure and adjust risk-free rates when governments carry default risk, and discusses the implications for valuation, equity risk premiums, and investment analysis across currencies.