Yield Curves

Gian Maria Tomat ()
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Gian Maria Tomat: Bank of Italy

Chapter Chapter 6 in Financial Markets Efficiency and Economic Behaviour, 2023, pp 77-92 from Palgrave Macmillan

Abstract: Abstract The term structure of interest rates is the relation between the yields of fixed income securities with different maturity. The securities used to compile the yield curve are normally government bonds. The expectations hypothesis states that long rates should be equal to expected average forthcoming short rates. Moreover, forward rates should reflect expectations of future spot rates. Forward rates result from trade between short and long term bonds and are either greater or lower than the spot rates with the same term, when the yield curve is respectively upward or downward sloping. The rollover term premium is the difference between the long rate and expected average short rates, conditional on information available in any time period. The holding period term premium is the difference between the expected holding period return and the spot rate. The forward term premium is the difference between the forward rate and the expected future spot rate.

Date: 2023
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DOI: 10.1007/978-3-031-36836-3_6

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