The risk premium approach says to add an inflation premium on top of the adjustments you’re already making, including the treasury spread between tenors.
So let’s say you have a 5 year and a 1 year treasury spread of 2% … Theoretically, shouldn’t that already have inflation expectations baked in? So when you add it for this methodology why would you then go add an inflation premium on top of it?
So let’s say you have a 5 year and a 1 year treasury spread of 2% … Theoretically, shouldn’t that already have inflation expectations baked in? So when you add it for this methodology why would you then go add an inflation premium on top of it?