ANTTI ILMANEN, PH.D.
Managing DirectorAQR Capital Management (Europe) LLP
Over the years, advances have been made in both the theoretical and the empirical analysis of the term structure of interest rates. However, such analysis is often very quantitative, and it rarely emphasizes practical investment applications. In this chapter we briefly describe the computation of par, spot, and forward rates, present a framework for interpreting the forward rates by identifying their main determinants, and develop practical tools for using the information in forward rates in active bond portfolio management.
The three main influences on the Treasury yield-curve shape are (1) the market’s expectations of ...