Need help with a Rebuttal to the attached affirmative stance on a debate. Due 2 am on 11th March

The Pure Expectations Theory of Interest Rates will not hold true in the Caribbean over the next seven (7) years.

Weopposed the topic. The next step would be to rebut the arguments of another team that were in support of the topic. I have attached an affirmative stance that was submitted. Would you be able to provide some assistance with highlighting any gaps in their position? (Can be in bullet points and if you may provide some reference material please.?)

Affirmative Position

The expectation theory of interest rate utilizes long-term interest rates of financial instruments to predict short-term future interest rates of other financial instruments in the exchange market (Chen, 2018). According to Brink (2011), there are three versions of the expectation theory, however, the pure expectations theory assumes the term premium to be null which is the case for U.S. bond, U.S. T-bills and U.S. Treasury notes in the stock market. With that being said, we firmly believe that an investor can buy a six year or two consecutive three years debt instruments and receive the same yield. In fact, European market research by renowned economist Eugene Fama lamented the predictive power of one to six months U.S. Treasury bills in forward rate. While the aforementioned research was conducted in the European market, government bonds generally behave similar regardless of the market. In light of this, we the affirmative are steadfast to our position that the Pure Expectations Theory (PET) of Interest Rates will hold true in the Caribbean over the next seven years. To support our claim, we will examine interest rate trend and currency stability in the Caribbean Community (CARICOM) stock exchange.

First and foremost, the primary hindrance against pure expectation theory of interest rate holding true in the Caribbean's financial market is interest rate risk. Interest rate risk represents the probability of a decline in the value of bonds resulting from unexpected fluctuations in interest rates (Corporate finance Institute, n.d.). Nevertheless, most Caribbean countries with active stock exchange utilizes significant reserves monetary policy so the central bank can manipulate interest rates when necessary. According to Pemberton and Watson (2004), Barbados is the primary Caribbean market for Corporate bonds, Government bonds and Treasury Bills in the territory and the aforementioned monetary policy ensures the central Bank of Barbados has control over short-term interest rates. In fact, since the early 1970s to present day, domestic interest rates of Barbados have generally followed the U.S. interest rates which reflect long-term interest (Worrell et al., 2012). Moreover, the Eastern Caribbean Central Bank (ECCB) that governs the Barbados currency have been experiencing a flat interest rate for years, largely because the Eastern Caribbean EC is extremely stable.

Given the asymmetry of domestic and international interest rate one notices that the pure expectation theory of interest rate will hold true inevitably. Shiller 1981 provides evidence of pure expectation theory's application following his analysis of a 5-years U.S. Treasury Notes in the European market. His research produced facts favoring the pure expectations theory given that long-term rates predicted future short-term rates (Brink, 2011).

In closing, we reiterate that Easter Caribbean has a remarkably stable currency and interest rate. That being stated, the pure expectation theory phenomenon can serve to be true, since there is little to no anticipated changes in the financial arena of Barbados. Notwithstanding the fact that debt instruments are rarely sold in the Barbados stock exchange, the very few that are sold holds true to the pure expectation theory of interest rate.

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