[Verse 1] When you look at bonds today with prices that you see There's hidden information about future rates to be The market tells a story of what interest might become Forward rates are waiting there for those who do the sum [Chorus] Forward rates show future's face Implied by bonds in the marketplace From spot to forward we can trace The path that interest rates will chase Lock it in, project ahead Forward curves show where we're led [Verse 2] Take two bonds with different terms, compare their yields today The longer bond must compensate for risk along the way If one year pays three percent and two years pays four The second year forward rate is higher than before [Chorus] Forward rates show future's face Implied by bonds in the marketplace From spot to forward we can trace The path that interest rates will chase Lock it in, project ahead Forward curves show where we're led [Bridge] One plus spot rate to the power of time Equals products of forwards that perfectly rhyme If rates go up the curve is steep If rates go down the slope falls deep [Verse 3] Plot these forwards on a graph from short term to long You'll see the forward rate curve telling market's song Upward sloping means rates rise, downward means they fall Flat curve says they'll stay the same through it all [Chorus] Forward rates show future's face Implied by bonds in the marketplace From spot to forward we can trace The path that interest rates will chase Lock it in, project ahead Forward curves show where we're led [Outro] Future rates implied today Forward curves light up the way Spot and forward hand in hand Help us understand
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