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.

Thedegreeofconvictiononexpectedfuturechangesofshort-terminterestdeterminethesizeofthedifferencebetweenDandH.

demandsecuritieswithshortdurationrelativetohorizon(D–H)

Expectedchangeininterestrates

Restatingthespeculativedemandformoneyintermsofduration

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

-20%

0%

20%

40%

60%

80%

100%

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

PIMCOTotalReturnFund:HistoricalMaturityBreakdownandDura on

0-1YRS 1-3YRS 3-5YRS 5-10YRS 10-20YRS 20+YRS Dura on(inyears)

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

Caplen 2011

40%

45%

50%

55%

60%

65%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jan-0

2

Apr-

02

Jul-

02

Oct

-02

Jan-0

3

Apr-

03

Jul-

03

Oct

-03

Jan-0

4

Apr-

04

Jul-

04

Oct

-04

Jan-0

5

Apr-

05

Jul-

05

Oct

-05

Jan-0

6

Apr-

06

Jul-

06

Oct

-06

Jan-0

7

Ap

r-0

7

Jul-

07

Oct

-07

Jan-0

8

Apr-

08

Jul-

08

Oct

-08

Jan-0

9

Apr-

09

Jul-

09

Oct

-09

Jan-1

0

Apr-

10

Jul-

10

Oct

-10

Jan-1

1

Apr-

11

Jul-

11

Oct

-11

Jan-1

2

Apr-

12

Deposit money banks asset composition

Treasury securities Reserves Foreign Assets Claim on the private sector (RHS)