Commercial Bank Maturity Demand for United States Government Securities and the Determinants of the Term Structure of Interest Rates**

Abstract

The determination of the term structure of interest rates, a subject of much controversy in recent years, has emphasized two principal viewpoints: the expectations hypothesis stresses the importance of expectations of future yields as determining the present term structure of interest rates; and the liquidity hypothesis emphasizes the greater “moneyness” of short-term debt as opposed to long-term debt. These main theories provide certain unique insights into the term structure; the acceptance of one need not require the rejection of the other. And the factors they stress at least hold the possibility of simultaneously influencing the term structure of interest rates.