Re: moore on term structure

[Warren Mosler <mosler@xxxxxxxx>]

Basil Moore wrote:
>
> Bill
> If we are talking solely about the maturity yield curve, I think this
> relates solely to governments, for which the credit risk can be assumed to
> be zero irrespective of the maturity.

Today, I would say the swap market is generally the 'risk free' rate.
What has happened
is that the Tsy market has taken on 'collateral' value.  That is, there
is
value to holding the Tsy beyond the risk free nature of the secs.  For
example,
many financial arrangements call for only Tsy secs as collateral, and
many CBs can hold
only tsy secs in their portfolios.  Given the limited supply of Tsy
securities
relative to this 'need,' they generally trade well below the 'risk free'
swap rate.
T bills, in particular, have been trading particularly rich in
expression to the
relative shortage.

Warren