Working Paper: NBER ID: w1789
Authors: Andrew F. Siegel; Charles R. Nelson
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.
Keywords: Yield Curves; Forward Rates; Financial Markets
JEL Codes: G12; E43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| flattening of the yield curve at long maturities (E43) | time to maturity (C41) |
| forward rates (E43) | averaging process that produces yields (C51) |
| decay of yields (Q31) | forward rate persistence (G17) |
| asymptotic yield exists (Q31) | asymptotic forward rate (C69) |
| yield curve's shape (E43) | time to maturity (C41) |