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I have been reading NZ Superfund's 2015 Ref Portfolio Review (here) and came across this notion:

Our estimate of the equilibrium return on 90-day Treasury Bills is 5%.

And this is under the column Risk-Free Rate. Can anybody expalin what does this mean?

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  • $\begingroup$ I think they just mean their estimate of what the TBill rate will be in the long term. They think it will move from the current value to 5% over the coming years. It is their forecast or their opinion, nothing more. $\endgroup$ – noob2 Oct 14 '16 at 12:46
  • $\begingroup$ Do you mean 90-day T-Bill will be at 5% in the long run? Or is it the rate on risk-free long-term rate (15-20Y risk-free rate)? $\endgroup$ – AK88 Oct 15 '16 at 3:15
  • $\begingroup$ The former: the short term rate. $\endgroup$ – noob2 Oct 15 '16 at 23:53
  • $\begingroup$ Isn't it little questionable to expect positive 5% return on short term T-Bill when there are negative rates all over the place? $\endgroup$ – AK88 Oct 17 '16 at 4:16
  • $\begingroup$ Yes, it seems very high to me also. $\endgroup$ – noob2 Oct 17 '16 at 11:47
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NZ has traditionally had rates higher than US.

As such, their very long run (or equilibrium) estimate of policy rates will likely be way above other developed markets.

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  • $\begingroup$ Thank you for your comment. I just looked at historical rates since 1999 and yes, there were times when the short term rate did exceed 5%. $\endgroup$ – AK88 Oct 23 '16 at 1:27

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