98,000 jobs this month, in accordance with the consensus expectations. The committee asks
Chan what will happen to the short-dated bond prices if the payroll report meets expectations.
The committee discusses the GDP growth forecasts which is expected to be weaker in the future
but more volatile as the economy adjusts to a changing interest rate environment. Chan believes
these factors will cause downward pressure on short-term government real rates.
Chan forecasts the real one-year risk-free rate to be 0.25% and average inflation over the next
year to be 1.25%. As part of his analysis, Chan reviews the current price of a zero-coupon
nominal Treasury bond with one year to maturity trading at $97.95 with a par value of $100.
Chan observes the difference in market pricing compared to his forecasts.
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