What is a commonly accepted proxy for the risk-free rate in the U.S.?

The 10-year U.S. Treasury note yield is commonly accepted as a proxy for the risk-free rate in the U.S. because it reflects the return on a government-backed security that has virtually no default risk. Treasury securities are considered risk-free since they are backed by the full faith and credit of the U.S. government. The 10-year maturity is particularly important for investors and economists, as it allows for comparison over a significant period, providing a more stable representation of the risk-free rate compared to shorter-term instruments.

This choice is essential for a variety of financial analyses, including the Capital Asset Pricing Model (CAPM), which uses the risk-free rate as a baseline for assessing the expected return of an investment relative to its risk. In contrast, other options like municipal bonds, corporate bonds, and commercial paper involve varying degrees of credit risk and are not risk-free, making them less suitable as proxies for this specific purpose.