At the same time, it expects that the sequence of rolled-over short-term rates over the next 10 years will average 3 percent. Hence, there is a term premium of minus 1 percent. What should the firm do? Clearly, it should take advantage of the cheap long-term debt by issuing bonds.
But if the firm is not facing a binding financing constraint, it is less obvious that the bargain 2 percent rate  1  See Jeremy C. Stein (2012), “Evaluating Large-Scale Asset Purchases,” speech delivered at the Brookings Institution, Washington, October 11.