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Key Financial Market Concepts, 2nd Edition by Bob Steiner

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The Forward-forward Yield Curve

Definition

The forward-forward yield curve shows zero-coupon yields against time to maturity for forward periods of a particular length, often one year, starting on one forward date and ending on another forward date.

How is it used?

In theory, a forward-forward interest rate is the rate at which someone can borrow or lend money, from one forward date to another. When such forward periods last 3 months, the instrument typically used to underlie such a transaction is an interest rate futures contract. For forward periods lasting longer than 3 months, several consecutive futures contracts can be used together in a strip. Such forward-forward interest rates should be in line with what the market expects cash market ...

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