Forward yield

The rate of return in the market today for a notional or actual deposit or borrowing:

1. Starting at a fixed future date; and
2. Ending on a later fixed future date.

Example

The forward yield for the maturity 2-3 periods is 3% per period.

This means that a deposit of £1,000,000 at Time 2 periods would return:

£1,000,000 x 1.03

= £1,030,000 at Time 3 periods.

A common application of forward yields is the pricing of forward rate agreements.

The forward yield is also known as the Forward rate or (sometimes) the Forward forward rate.

(The Forward forward rate is technically slightly different.)

Conversion

If we know the forward yield, we can calculate both the zero coupon yield and the par yield for the same maturities and risk class.

See also

• Yield curve
• Par yield
• Zero coupon yield
• Forward rate agreement
• Periodic yield
• Flat yield curve
• Rising yield curve