| I think we are misaligned on the reference time for the real valuation. If you buy a 10 year bond today, you will get $100m dollars in 2023. In 2033, that $100m will have a real value of $100m 2033 dollars on your balance sheet. HTM assets are reported in the nominal purchase price today, which is also the real dollar value if you calculated it on the day of maturity. I agree that if you estimated the net present value of $100m 2033 dollars, it would be worth less in terms of 2023 dollars. This brings us back to your earlier question >Do you really want to pretend that a ten year bond you purchased when inflation and the interest rate were near zero, is worth the same when inflation and the interest rate go up to say 10%? What about inflation of 100%? In nominal terms you’ll get back your capital, but in real terms you will get back only one thousandth. YES! This way the asset sheet is always correct in how much you will get for the asset. If you have a $100 nominal bond it is worth $100 dollars. That is true today, and that will be true on the day of maturity. It will be true every day in between. The dollar value of the asset remains constant at the time of reporting. Why would you want to report the net present value of that asset at maturation - which sounds like what you are suggesting? The point of listing your bonds on your balance sheet isn't to estimate profit or returns, it is to list your current asset allocation. You have a separate line item for revenue coming from those bonds. You have a separate model entirely for calculating ROI and profitability. If you made a spreadsheet of your current asset allocation today, how would you list money locked in a 10 yr CD. As the dollar amount in the account, the value if you were forced to pull it out and pay a penalty, or some time shifted valuation? |