Is the return on 1-year t-bond risk free?
Why is a 8% t-bond idependent of the state of the economy %'s?
The return on a 1-year Treasury bond (t-bond) is generally considered to be risk-free. This is because the U.S. government backs these bonds and has a highly reliable history of making interest and principal payments on time. However, it's important to note that while t-bonds are considered low-risk, they are not entirely immune to economic factors such as inflation.
Regarding the second question, the interest rate on a t-bond does not depend on the state of the economy because it is determined through an auction process conducted by the U.S. Department of the Treasury. The interest rate (yield) is set based on the demand and supply of the bonds at the auction. The auction process allows buyers to bid on the bonds, and the interest rate is set at the highest rate that will still satisfy the demand for the bonds. This means that the interest rate is not influenced by the state of the economy but by the market participants' bids. The purpose of this approach is to ensure that the government can raise the required funds without being influenced by short-term fluctuations in the economy.