Lesson 6 of 6 · 13 min
Comparing the spot, par and forward curves
Par and forward curves are both derived from the spot curve, so the spot curve's slope tells you where the other two lie: for an upward slope, par slightly below spot and forwards above.
In short
- Par and forward rates are both derived from spot rates, so the three curves' shapes are linked.
- Upward-sloping spot curve (positive rates): par curve slightly below spot (gap widening with maturity); forward curve above spot.
- Flat spot curve: par and forward curves equal the spot curve; no change in rates is implied.
- Inverted spot curve: par curve slightly above spot; forward curve below spot, implying lower future rates.
- Where the spot curve is falling, forwards lie below it; where it is rising, forwards lie above it; where it is flat, forwards ≈ spot.
- With negative spot rates and an upward slope, par rates lie slightly above spot rates, and forward rates can be positive.
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