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What is Driving the Return Spread Between “Safe” and “Risky” Assets?
Real interest rates on U.S. government bonds have declined persistently since the 1980s. U.S. government bonds are backed by the full faith and credit of the federal government and, hence, are considered one of the safest assets because the risk of default is extremely low. More broadly, interest rates on other safe assets, such as highly rated corporations, have also declined.