Risk-Free Rate of Return

Glossary

Banking

Risk-Free Rate of Return

The risk-free rate of return is a core notion in bond markets that refers to the return on risk-free assets. The government bonds of advanced economies are used as a proxy in financial markets for risk-free assets, with US Treasury securities across the maturity spectrum representing the globally accepted and most widely used definition of a risk-free yield curve. The benchmark rates now replacing Libor are referred to as risk-free rates, so securities priced against risk-free rates offer a return over risk-free rates of return. Risk-free rates include the Secured Overnight Financing Rate (SOFR) in the US, the Sterling Overnight Index Average (SONIA) in the UK and others versions across the eurozone, Switzerland, Japan, Australia and other jurisdictions.

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