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Flattening of Bond Yield Curves for Long Maturities
Author(s) -
LIVINGSTON MILES,
JAIN SURESH
Publication year - 1982
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1982.tb01101.x
Subject(s) - flattening , yield curve , bond , yield (engineering) , econometrics , maturity (psychological) , term (time) , economics , mathematics , physics , thermodynamics , finance , psychology , developmental psychology , quantum mechanics , astronomy
The paper presents a theoretical proof that flattening of yield curves for par bonds is inevitable for long maturities. This proof implies that behavioral explanations of flattening are unnecessary. The proof also implies that the use of yields to maturity of couponbearing bonds to estimate the true term structure (as well as forward rates) for long maturities has potentially infinite bias, suggesting that a greater effort should be made to directly estimate the true term structure in empirical work.