Re: Starting Point

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

--- Bruce McFarling <Bruce.McFarling@xxxxxxxxxxxxxxxx>
wrote:
> 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.

Right, by 'risk free' I meant free of default risk.
And even that is subject to political forces in all
cases.

>
> 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?

10 year yields in Japan are 0.65%, for example,
for a start on what could happen.

>
> These are open questions, BTW.
>
Understood!

warren

>
>
>
>
> --
> 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)
> (02) 4921 7398 (FAX)
>
>
>


=====
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