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This research reviews a simple three-factor arbitrage-free term structure model estimated by Federal Reserve Board staff and reports results obtained from fitting this model to U.S. Treasury yields since 1990. The model ascribes a large portion of the decline in long-term yields and distant-horizon forward rates since the middle of 2004 to a fall in term premiums. A variant of the model that incorporates inflation data indicates that about two-thirds of the decline in nominal term premiums owes to a fall in real term premiums, but estimated compensation for inflation risk has diminished as well.

Term Premiums on Zero Coupon Bonds by Maturity, Monthly (10)
Instantaneous Forward Term Premiums by Maturity, Monthly (10)
Fitted Yield on Zero Coupon Bonds by Maturity, Monthly (10)
Fitted Instantaneous Forward Rates by Maturity, Monthly (10)

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