Re: Starting Point

[Bruce McFarling <Bruce.McFarling@xxxxxxxxxxxxxxxx>]

Warren Mosler <mosler@xxxxxxxxxxxxxx> 03/20/03 02:27 AM wrote:
>

>> If we are talking about a flat yield curve dead on zero (!?),

>For the 'risk free rate' pretty much yes.  All that needs to be done is for the reserve bank to announce that the support rate and overnight interbank will be 0 bid, and that policy will be in force by law for 30 years, for example.

>Credit spreads, etc. can then take it from there.

Is there such a thing as a truly risk free long term rate?  There is at the very least the risk of capital loss if yields rise and you then liquidate when you hold long term debt instruments.

and if the scenario that normally flattens or even inverts the yield curve are people paying a premium to lock in a good return on long term debt ... how likely is that near a yield of zero?

These are open questions, BTW.





--
Dr. Bruce R. McFarling
Lecturer in Economics & International Business
Newcastle Graduate School of Business
University of Newcastle
Callaghan NSW 2308
(02) 4921 7962 (W, voicemail)
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