BIS paper challenges standard theories of term structure
“Expectation errors”, not term premia, create biased predictions of short-term rate – researchers
New research challenges the standard view on how markets price the term structure of interest rates, giving “novel insights” into how expectations about future monetary policy are formed.
The Bank for International Settlements working paper explores data on US federal funds rate futures and overnight index swaps (OIS). Authors Maik Schmeling, Andreas Schrimpf and Sigurd Steffensen find “expectation errors” are the main driver of excess returns in these markets, not term premia as many other
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