Just how safe are risk-free assets?

How safe are ‘risk-free’ assets? It is a question many investors have asked themselves in recent years. It is perhaps most pertinent for ‘captive’ investors, such as pension funds, insurance companies and banks, because their mandates and UK regulators oblige them to buy gilts regardless of price or value. Once upon a time, it was simple. UK government bonds were deemed safe, lower risk assets that provided a moderate real return. But now the ‘risk-free’ label and the moderate returns are under threat. As recently as 2008, the Barclays Equity Gilt Study calculated that the real return...