Problems with this theory:
- Lack of securities: In the existing markets an investor is not guaranteed to always find the necessary securities. For example, the supply of gilts is determined by the way the DMO chooses to finance the government’s borrowing requirements. In this case yields would reflect supply and demand in each term to redemption segment (see below).
- Matching of assets to liabilities: for an investor with a known fixed liability the perfect hedge would be a security of similar term and payment. Thus the investor would not be indifferent.