And because they have zero expected return, they are inferior to the rate of risk-free return.
Banks will be allowed to borrow from the Fed at near 0.0 percent interest and buy Treasury yielding 1.5 percent, thereby earning a risk-free return.
Some asset prices have been inflated (especially gold and bonds), but overall inflation has remained relatively low because people and businesses have been holding large cash balances, and banks have parked their excess reserves at the Fed for a risk-free return.
And, because myriad Dodd-Frank rules remain unwritten and banks are facing the phase-in of new Basel III standards, to increase profits, banks can either make a riskier loan in an uncertain regulatory environment, or cool their heels and collect a small but risk-free return.
Note that you can get a risk-free real return of 3.5% on inflation-indexed U.S. Treasurys.
This line of thinking suggests that public pensions should use a risk-free investment return assumption rather than the investment return assumption used by most plans of between 7.5 percent and 8.5 percent.
But he ignores the fact that savers are incurring permanent losses by being deprived of normal rates of return on risk-free assets.
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Taking Greek junk bonds in return for risk-free Bundesbank ones.
The equity risk premium is usually viewed as the extra return that investors demand for holding equities rather than risk-free bonds.
Thus, the compensation for having to wait for the money should be that T-Bill rate: the available risk free return.
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Only a few short years ago, many financial planners insisted that stocks become virtually risk-free if you just hold on to them long enough, guaranteeing you a higher return than any other asset.
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