Default-free zone

Imagine you and your friends are playing a game of tag. Your friend who is "it" has to run around and tag the other players, but there is a safe zone where nobody can be tagged.

In the financial world, there is something called a "default-free zone", and it's kind of like that safe zone in your game of tag. It's a place where investors can put their money and not worry about the risk of someone not being able to pay back what they owe.

Let's say you have some money and you want to invest it. There are different places you could put it, like buying stocks or buying bonds. But when you buy a bond, you're basically loaning money to the company that issued the bond. You're counting on them to pay you back with interest.

But sometimes, companies aren't able to pay back their debts. They might go bankrupt or run out of money. And if you're the one who loaned them money, you might not get it back.

That's where the default-free zone comes in. There are certain entities, like the US government or some big corporations, that are considered very reliable when it comes to paying back their debts. If you invest your money in these entities, you're pretty much guaranteed to get your money back. That's because they're in a default-free zone - they're considered so unlikely to default on their debts that it's almost like they're playing tag in a safe zone.

So, to sum it up: a default-free zone is a place where investors can put their money and not worry about the risk of someone not being able to pay back what they owe, kind of like a safe zone in a game of tag.