Abstract
There are time-varying term and default premiums in the expected returns on money market securities. Default premiums decline with maturity and tend to be higher during recessions. Term premiums tend to increase with maturity during good times, but humps and inversions in the term structure of expected returns are common during recessions. Treasury bills produce positive average term premiums for the overall sample, but average term premiums for private-issuer securities are close to 0.0. A general conclusion is that variation in forward rates is primarily variation in current epected returns rather than in forecasts of changes in interest rates.
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