Short Term Forward Rates Risk Premia

Central banks revise rates gradually and the natural consequence of this repeated moves are trends in short term interest rates markets. Empirical research shows that forward rates at the short end of the curve mis-forecast interest rates realized in the future which suggests that forward rates do not price in trending and a significant but variable risk premia can be earned. The strategy captures the short term forward rate risk premia through long and short positions in developed country short term interest rates markets, using primarily futures and/or forward contracts.

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