Long-Term Behavior of Yield Curves

Charles Nelson and Andrew F. Siegel

No 1789, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The flattening of yield curves at long-term maturities is proven to be approximately proportional to the reciprocal of the time to maturity under general conditions. This is a consequence of the persistence of earlier forward rates in the averaging process which produces yields from forward rates. This relationship suggests the use of a"reciprocal maturity yield curve" which significantly facilitates the interpretation of the behavior of long-term yields by linearizing them for display over a shorter interval. This is illustrated using a yield curve for U.S.Treasury bills.

Date: 1986-01
Note: ME
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Published as Nelson, Charles R. and Andrew F. Seigel. "Long-Term Behavior of Yield Curves," Journal of Financial and Quantitative Analysis, Vol. 23, No. 1, March 1988, pp. 105-110.

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