So, test it. From 1980 to 1986 the Lombard rate halved. Many Bunds would thus be trading well above par. Was this a problem?
— Tim Worstall (@worstall) September 17, 2017
And for the Senior Lecturer, this.
Gilts issued in 1981 would, circa 1994, have a coupon near triple the market yield. They would therefore be at a significant premium to par*.
Was this a problem?
*yes, I know that’s the 10 year, but the 30 year will follow much the same path.