The spot interest rate is the ratio of the interest income indicated on the bond's face or the discount income obtained when purchasing the bond to the current price of the bond. It is the yield to maturity of a non-coupon security at a given point in time. By purchasing an interest-bearing bond issued by the government, after the bond matures, the bondholder can receive a one-time payment with interest. The ratio of the one-time income to the principal is the spot interest rate.

Forward interest rate is the interest rate level implicit in a given spot interest rate from one point in time in the future to another point in time. After the yield curve is determined, all forward interest rates can be obtained based on the spot interest rates on the yield curve. The forward interest rates are closely linked to the yield curve.

Extended information:

The difference between spot interest rates and forward interest rates is that the starting point of the interest calculation date is different. The starting point of the spot interest rate is at the current moment, while the starting point of the forward interest rate is in the future. at some point. For example, the current time is September 5, 2005. On this day, the yields of several bond varieties with different remaining maturities in the bond market are the spot interest rates.

At the current moment, the reason why the market has different yields on bonds maturing in 2 years and 1 year is mainly because investors believe that the yield in the second year will be lower than that in the first year. changes occur.

Baidu Encyclopedia-Spot Interest Rate

Baidu Encyclopedia-Forward Interest Rate