Expectations Theory
A theory proposing that long-term interest rates can act as a predictor of future short-term interest rates.
Investopedia Commentary
Empirical evidence suggests this hypothesis often overstates future short-term interest rates. This over-estimation may be due to the higher risk premium associated with holding a long-term debt security whose yield is more uncertain due to potential changes in interest rates.
Related Links
Trying To Predict Interest Rates
See also: Bond, Debenture, Fed Model, Federal Funds Rate, Fiscal Policy, Interest Rate, Monetary Policy, Treasury Note