Why is the US 30 day t bill traditionally used as a risk free rate instead of Euro bonds for example? They are both not going to default surely?
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2 Answers
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For many purposes we need a short term risk free rate. T-bill rates are ideal for this. Most Euro bonds have maturities measured in years, they cannot be considered "short term" or "money market" rates.
Also, Eurobonds are issued by a variety of issuers. Although generally highly rated, they may differ somewhat as to default probability. In other words they are not a good reference because of non uniformity. Which specific Eurobonds would be used ?
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Is a proxy. Depending on what you are calculating and your considerations. If you are calculating something in EUR and in Europe you might want to use the German bond. It just depends on your own criteria.
