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I'm currently implementing a G++ model (Two Factor Hull & White model with constant parameters) on zero curve bootstrapped from USD IRS.

Currently, USD IRS is humped at 30 years; swap rate goes up until maturity of 30 years and starts to go down to maturity of 50 years. This causes the bootstrapped zero curve to be also inverted at 30 years. Furthermore, this causes the forward curve to be inverted as well.

My question is, if I model Spot Curve at some future points, i.e. P(t, T), would the future spot curve(s) become completely inverted as I increase t?

This is what I am observing, and it seems right as spot curve in the future depend on forward curve observed now (Please correct me if I am wrong). Thank you so much for any clarifications!

edit: changed "semi-inverted" to "humped"

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The forwards and the spot rates will be decreasing, that is correct.

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  • $\begingroup$ Thank you so much for the clarification! $\endgroup$ Apr 5, 2021 at 4:57

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