Can anyone give some color around why the 1-yr treas note uses the long term inflation rate in the risk premium approach instead of the current inflation rate?
Even the text states that the inflation premium should reflect the average inflation expected over the maturity of the debt.
I’m not sure why were using a long term rate for 1 yr debt.作者: sgupta0827 时间: 2013-4-23 11:12
Not per the answer, it uses the long term inflation rate for all three.作者: onelife1 时间: 2013-4-23 11:14
Follow up question: any thoughts as to why the 10 year MBS doesn’t include the 1% premium for spread of 10 year over 1 year treasury note? The only premium shown is the 10 year MBS prepayment risk spread, but that’s over 10 year treasuries.作者: leadcfa 时间: 2013-4-23 11:21
I get why there isn’t a spread over the 10 year treasury, but shouldn’t they include the spread for the 10 year treasury over the 1 year treasury? Otherwise you’re not being compensated for the extended holding period.作者: leadcfa 时间: 2013-4-23 11:23
10-year MBS prepayment risk spread (over 10-year Treasuries)a 95 bps
fine print - fine note a
aThis spread implicitly includes a maturity premium in relation to the 1-year T-note as well as compensation for prepayment risk.
Fine print / footnotes are as important !
