Which bonds are often considered default-free?

U.S. Government bonds are considered default-free because they are backed by the full faith and credit of the U.S. government. This backing ensures that the government can meet its debt obligations, as it has the ability to levy taxes and print currency if necessary. For investors, this characteristic significantly reduces the risk associated with these bonds, making them a benchmark for evaluating the safety of other investments.

In contrast, corporate bonds carry a risk of default since they are issued by companies that may face financial difficulties, and their ability to repay debt depends on their business performance. Municipal bonds, while generally considered safer than corporate bonds, still involve some level of credit risk related to the issuing municipality. Convertible bonds, which can be converted into equity, may also carry significant risks linked to the issuing company's financial health.