Daniel1985

I know you didnt say you were better than scwheser, didnt mean it like that.. but if you can pull out something that intricate in a detail of the answer, i believe you will be good to go. Many questions we come across each day are BS.. sometimes it is better to let them go..
but if anyone knows the answer go on in your quest for knowledge..

Daniel1985

They want to know the underlying curve rates, you have to strip way the premiums. The rates they gave you include both the real interest rates and the premiums for liquidity/preference.
You have to look at the underlying premium for the liquidity risk. The spread is where they are coming up with the negative slope at the tail.
47. Time has passed but yet the rates last year and this year are the same. The liquidity premium will be higher for longer term maturities. This means the real interest rate had to go down, the higher liquidity premium was added to make the final quote the same both year.
48. All real rates are the same last year, with buyers needing/wanting to be in certain spaces of the maturity curve, so the premium is high/low based on the maturity preference. The curve can still be flat.
hope it helps some..