NBS on Nostr: Put another way: You lend me $90 today on the condition I pay you $100 in 1yr. You ...
Put another way:
You lend me $90 today on the condition I pay you $100 in 1yr. You own a debt (10% zero coupon bond)
Tomorrow, rates go up to 15%. Now you can lend someone $85 and receive $100 in 1yr. So the $90 you lent out yesterday can be lent out now for only $85. You on paper lost $5. This 'loss' doesn't matter to you given you hold the debt until you get your $100 back
But if you need cash and have to sell that debt to someone at its market value, you're in trouble. Otherwise who cares
You lend me $90 today on the condition I pay you $100 in 1yr. You own a debt (10% zero coupon bond)
Tomorrow, rates go up to 15%. Now you can lend someone $85 and receive $100 in 1yr. So the $90 you lent out yesterday can be lent out now for only $85. You on paper lost $5. This 'loss' doesn't matter to you given you hold the debt until you get your $100 back
But if you need cash and have to sell that debt to someone at its market value, you're in trouble. Otherwise who cares