The Use of Spreads in Forecasting Medium Term U.K Interest Rates

This paper aims to extend recent work on the term structure of interest rates by establishing, in the context of the medium term UK interbank market, forecasting models which make use of market spreads as error correction terms. These models are then used within a trading scenario to test the short run efficiency of the market. The results indicate that this market is inefficient in the short run. Furthermore, the performance of the multi-step-ahead forecasts from the models suggest that this may be a fruitful avenue for further research into longer maturity rates