The Information in Long-Maturity Forward Rates
Current 1-year forward rates on 1- to 5-year U.S. Treasury bonds are information about the current term structure of 1-year expected returns on the bonds, and forward rates track variation through time in 1-year expected returns. More interesting, 1-year forward rates forecast changes in the 1-year interest rate 2- to 4-years ahead, and forecast power increases with the forecast power to a mean-reverting tendency in the 1-year interest rate.