By 
Didier Darcet
17 January 2022

Playing With Fire

You can only purchase two things in the markets: a contract (for example a 10-year bond), or a title of property (like a share). I draw this observation from our trusted source, Charles Gave.

However, you cannot value both in the same way, simply because the first has a finite duration (here 10 years), and the second is a perpetual.

The consequence is of upmost importance when rates are very low - as is the case today - and when they begin to rise (for example from 1.5% to 2.5%), which could be the case for the United States in 2022.

In this scenario - all other things being equal - the contract loses less than 9%, but the title deed loses 40%.


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