Unlocking Future Interest Rates: How Yield Curve Shapes Market Expectations
The term structure of interest rates shows how the yields on different securities change based on their maturity dates. The shape of this relationship can give insights into what the market expects for future interest rates and monetary policy. Cox, Ingersoll, and Ross in 1985 developed a theory to understand this relationship, which has been used in various models. These models help economists and investors predict how interest rates might change in the future.