Why use “long-term inflation expectation of 2.6%” rathet than “current inflation rate” in calculating the expected return of the 1-year US Treasury note ? Shall the “current inflation rate” more relevant ? On the other hand, what is the definition of long-term ?
current inflation is wrong to use - because it could be higher or lower. Unless you were doing a tactical allocation based on temporary phenomenon, it is better to use the Long term expectation. (I think definition is >= 5 years)
cpk123 Wrote: ------------------------------------------------------- > current inflation is wrong to use - because it > could be higher or lower. Unless you were doing a > tactical allocation based on temporary phenomenon, > it is better to use the Long term expectation. (I > think definition is >= 5 years) Thanks a lot !
Can someone please explain why we don’t add 1.0 (spread of 10yr over 1 year treasuries) when we calculate the return for the 10 year MBS? Guide answer: Real risk free 1.2. + Long term inflation 2.6 + 10 year MBS prepayment risk (over 10 year) 95 bps = 4.75
Just posted the same question as lhskev, I would’ve also added the 1% esp as the MBS spread is "over 10-year Treasurries) Any ideas?
asked and answered before @ http://www.analystforum.com/phorums/read.php?13,1241079,1241079#msg-1241079
get em CP!..you support em with facts, I support em with commentary on said supporting of facts!
Thank you all.