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That's only true if investors think the 10% rates are permanent. Future interest rates are a time series not a single value, and I suspect most will use a lower
by scarab92 4y ago
That's only true if investors think the 10% rates are permanent. Future interest rates are a time series not a single value, and I suspect most will use a lower rate in later years reflecting some mean reversion.
- qq66 4y agoBut you can lock in rates for decades.
- MR4D 4y agoA 10% rate on a 30-year treasury, is for all intents, permanent. Think of it this way - a person buys a 30-year bond yielding 10%. Then, for the next 30 years, no matter what happens to interest rates or prices, they will earn a 10% return on their original bond purchase, risk free. Remember also that 30 years is approximately your adult working life, so a really long time that people tend to think of a “permanent”. Is it truly permanent? No, but for purposes of discussion and financial planning, it’s close enough.