A forward rate that is implied by the current term structure of interest rates for a specific maturity (in the future). This rate is inferred from the yield curve– i.e., the spot rate embodied in today’s yield curve for a certain period in the future. In calculation, implied rates are inferred from successive spot rates over the term structure of interest rates for a specific sector of the market. An implied forward rate is a break-even reinvestment rate. For example, it connects the return on an investment in a short-term zero-coupon bond to the return on an investment in a longer-term zero-coupon bond.
This rate can be set today for a future period, e.g., a six-month rate that will be effective three months, or six months, or twelve months, from today, and which makes an investor indifferent to two investments made in the future with different maturities.
Implied forward rate is set to change over time as the market changes its perspective/ expectations of future rates.
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