GlobeSt talks to Andrew Thornfeldt about the historical accuracy of the forward curve
Summary
In a Chatham webinar, 60% of attendees answered that they use the forward curve to project future interest rates. Andrew Thornfeldt told GlobeSt.com why they may be overestimating their costs if they rely on just the forward curve to make their debt and derivatives decisions.
GlobeSt.comIf an investor is only looking at the forward curve, Thornfeldt says it is difficult to make predictions about future rate environments.
By looking at the forward curve, Thornfeldt says investors do not see all of the relevant market data points. “The problem is that they’re stopping there,” he says.
If they stop there, Thornfeldt thinks investors are not as thorough and prudent as they could be. Instead, it makes more sense for them to look at a broader range of potential outcomes.
“We have 30 years of history demonstrating that the forward curve is the best information we have in terms of what interest rates are projected to do in the future,” Thornfeldt says. “However, historically, rates have just never followed the forward curve. They’ve deviated from the forward projections in such a meaningful material way and in such a predictable way.”
If an investor is only looking at the forward curve, Thornfeldt says it is difficult to make predictions about future rate environments.
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