Well, for a blue chip paying regular dividends in a stable 'stock' market, we might get 4% return, or a PE of 25, the inverse. Buy if we reduce that for market insurance and currency insurance, we get a return closer to 2.5, maybe 3.0. The ten year government bond has these implied insurances unitize to time, the bond is the break even over all assets.
In this model, market insurance is mostly regulatory assuming the stock remains liquid. So simple I ignore technological change. The current PE is 32, abut 3%. What should the ten year be? Less than 3.0, closer to 2.0. On a risk adjusted basis the ten year should hold its relative ratio to PE. Government should be charging more for its insurance, getting a cheaper rate, I am with Truman.
Government gets a rate discount because it provides insurance. So government either is providing less insurance, or is seeing less demand for its insurance. The Europeans still buy the stuff when they need protection, and they drive the rate down to 2.8.
I think finance can see through the fog and estimate better the ability of government to weather a storm and government isn't getting its discount rate.
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