15. We show in other studies how interest-rate expectations can be measured using survey data, how bond risk premiums can be estimated using historical return data, and how the convexity bias can be inferred using option prices; see Ilmanen, “Market’s Rate Expectations and Forward Rates,” op. cit.; Ilmanen, “Does Duration Extension Enhance Long-Term Expected Returns?” op. cit.; and Ilmanen, “Convexity Bias in the Yield Curve,” op. cit. Alternatively, all three components could be estimated from the yield-curve if one is willing to impose the structure of some term-structure model.

16. A related assertion claims that if near-term expected returns were not equal across bonds, it would imply the existence of riskless arbitrage opportunities. This assertion is erroneous. It is true that if forward contracts were traded assets, arbitrage forces would require their pricing to be consistent with zero prices according to Eq. (36.2). However, the arbitrage argument says nothing about the economic determinants of the zero prices themselves, such as rate expectations or risk premia. The experience of 1994 and 1999 shows that buying long-term bonds is not riskless even if they have higher expected returns than short-term bonds.