Marco Fante says:
September 16 2017 at 1:03 am
The commenters here that have cited formulaic, CAPM type explanations for the aberration in bond prices would appear to have been paying insufficient attention to the relevant chart.
There is no surprise in the fact that there is a gap between the nominal and market value of Govt. debt, and the standard explanation for that applies quite neatly to the period before 2009 where the gap between the two values is relatively narrow, steady, consistent and (as formulae would have it) predictable.
What the standard explanations obviously do not account for is the sudden, erratic and increasing gap that has appeared since 2009. I’m quite shocked by the chart actually. I had no idea that divergance had become so extreme. It has a lot to do with the value people place on security of course. The ‘risk-free rate’ has become effectively negative. More so than I imagined.
Richard Murphy says:
September 16 2017 at 8:24 am
A rational comment
What does S. Fante think will happen to bonds in issuance when interest rates fall?