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Long-Term Behavior of Yield Curves

Published online by Cambridge University Press:  06 April 2009

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.

Information

Type
Research Article
Copyright
Copyright © School of Business Administration, University of Washington 1988

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