demand for securities with short duration relative to horizon(D – H)
Expected change in the interest rate
The degree of conviction on expected future changes of short-term interest determine the size of the difference between D and H.
Thedegreeofconvictiononexpectedfuturechangesofshort-terminterestdeterminethesizeofthedifferencebetweenDandH.
demandsecuritieswithshortdurationrelativetohorizon(D–H)
Expectedchangeininterestrates
Restatingthespeculativedemandformoneyintermsofduration
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
-20%
0%
20%
40%
60%
80%
100%
6/1/00
12/1/00
6/1/01
12/1/01
6/1/02
12/1/02
6/1/03
12/1/03
6/1/04
12/1/04
6/1/05
12/1/05
6/1/06
12/1/06
6/1/07
12/1/07
6/1/08
12/1/08
6/1/09
12/1/09
6/1/10
12/1/10
6/1/11
12/1/11
6/1/12
12/1/12
6/1/13
12/1/13
6/1/14
PIMCOTotalReturnFund:HistoricalMaturityBreakdownandDura on
0-1YRS 1-3YRS 3-5YRS 5-10YRS 10-20YRS 20+YRS Dura on(inyears)
• Much of the policy discussion has been misplaced. They ignore the historical role NDBs play to foster development at different stages of economic growth.
Caplen 2011
40%
45%
50%
55%
60%
65%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-0
2
Apr-
02
Jul-
02
Oct
-02
Jan-0
3
Apr-
03
Jul-
03
Oct
-03
Jan-0
4
Apr-
04
Jul-
04
Oct
-04
Jan-0
5
Apr-
05
Jul-
05
Oct
-05
Jan-0
6
Apr-
06
Jul-
06
Oct
-06
Jan-0
7
Ap
r-0
7
Jul-
07
Oct
-07
Jan-0
8
Apr-
08
Jul-
08
Oct
-08
Jan-0
9
Apr-
09
Jul-
09
Oct
-09
Jan-1
0
Apr-
10
Jul-
10
Oct
-10
Jan-1
1
Apr-
11
Jul-
11
Oct
-11
Jan-1
2
Apr-
12
Deposit money banks asset composition
Treasury securities Reserves Foreign Assets Claim on the private sector (RHS)
Top Related