What risk are Treasury bonds free from?

Treasury bonds are considered free from credit risk because they are issued by the U.S. government, which has a strong track record of meeting its debt obligations. The government can raise taxes or print more currency to ensure that it can always pay back its borrowings. This backing by the full faith and credit of the government of the United States makes Treasury securities a safe investment when assessing the likelihood of default.

In contrast, while they might be exposed to inflationary risk—since inflation can erode the purchasing power of fixed interest payments—they are not free from this risk. Similarly, capital risk, associated with the potential loss of principal if bonds are sold before maturity at a loss, and political risk, which could arise from government actions affecting financial markets, also do not apply in the same manner as credit risk does to Treasury securities. Thus, the unique characteristic of Treasury bonds being free from credit risk is what distinguishes them and makes them a preferred choice for conservative investors.