The document discusses how the degree of conviction about future short-term interest rate changes determines the size of the difference between the duration (D) of securities and the investor's horizon (H). It also notes that demand exists for securities with short duration relative to the horizon, and that this demand can be restated in terms of duration.

5. The degree of
conviction on
expected future
changes of short-term
interest
determine the size of
the difference
between D and H.
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.
demand securities
with short duration
relative to horizon
(D – H)
Expected
change in
interest rates
Restating the speculative demand for
money in terms of duration

7. -20%
3.00
3.50
4.00
4.50
5.00
40%
5.50
6.00
6.50
7.00
7.50
100%
8.00
0%
20%
60%
80%
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
PIMCO Total Return Fund: Historical Maturity Breakdown and Dura on
0-1 YRS 1-3 YRS 3-5 YRS 5-10 YRS 10-20 YRS 20+ YRS Dura on (in years)

21. • Much of the policy discussion has been misplaced. They ignore the historical role NDBs play to
foster development at different stages of economic growth.

24. Caplen 2011

37. 0%
40%
45%
15%
50%
25%
55%
60%
40%
65%
5%
10%
20%
30%
35%
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Deposit money banks asset composition
Treasury securities Reserves Foreign Assets Claim on the private sector (RHS)