FRB: Speech, Bernanke--Reflections on the Yield Curve and Monetary Policy--March 20, 2006:
"Current and near-term forward rates are particularly sensitive to monetary policy actions, which directly affect spot short-term interest rates and strongly influence market expectations of where spot rates are likely to stand in the next year or two.....For example, since June 2004, the one-year forward rate for the period two to three years in the future has risen almost 1-1/2 percentage points. As the ten-year yield is about unchanged even as its near-term components have risen appreciably, it follows as a matter of arithmetic that its components representing returns that are more distant in time must have fallen. In fact, the one-year forward rate nine years ahead has declined 1-1/2 percentage points over this tightening cycle. Incidentally, by comparing forward rates implied by yields on nominal Treasuries with those implied by Treasury securities that are indexed for inflation, we can infer that about two-thirds of the overall decline in far-distant nominal forward rates over this tightening cycle has been associated with a drop in real yields, with the remainder reflecting a drop in inflation compensation."