What does the 1y1y forward rate imply about the market?

Under pure expectations theory, the 1y1y forward rate represents the market's expectation of the 1-year spot rate 1 year from now. In practice, forward rates embed risk premium and convexity bias, so they tend to be higher than actual future short rates.

How are forward rates used in interest rate swap valuation?

Fixed-for-floating swaps are valued by projecting floating leg cash flows using forward rates derived from the OIS or SOFR curve, discounting all cash flows at OIS rates, and finding the fixed rate that makes present value of fixed and floating legs equal.

Forward Rate 1y1y from Spot Rates

Calculate the 1-year forward rate 1 year from now (1y1y) using the 1-year and 2-year spot rates: (1 + s2)^2 / (1 + s1) - 1, representing the implied future short-term rate from the yield curve.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How It Works

Calculate the 1-year forward rate 1 year from now (1y1y) using the 1-year and 2-year spot rates: (1 + s2)^2 / (1 + s1) - 1, representing the implied future short-term rate from the yield curve

Each component has a specific meaning:

Now — The now recorded for the scenario being assessed.

Note: Interpret the 1y1y forward rate result against the thresholds and context described above.

How to Use

Enter the now for the scenario you are assessing. Calculate the 1-year forward rate 1 year from now (1y1y) using the 1-year and 2-year spot rates: (1 + s2)^2 / (1 + s1) - 1, representing the implied future short-term rate from the yield curve. Use the 1y1y forward rate result to inform your calculation.

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