This paper presents a regression approach to measuring the information in forward interest rates about time varying premiums and future spot interest rates. Like earlier work, the regressions identify variation in the expected premiums on longer-maturity Treasury bills. The more novel evidence concerns the forecasts of future spot rates in forward rates. The regressions provide evidence that the one-month forward rate has power to predict the spot rate one month ahead. During periods preceding 1974, forward rates have reliable forecast power for one-month spot rates up to five months in the future.

This paper examines expected returns on U.S. Treasury bills and on U.S. Government bond portfolios. Expected bill returns are estimated from forward rates and from sample average returns. Both estimation methods indicate that expected returns on bills tend to peak at eight or nine months and never increase monotonically out to twelve months. Reliable inferences are limited to Treasury bills and thus to maturities up to a year. The variability of longer-term bond returns preempts precise conclusions about their expected returns.