Short-term debt instruments

Implied forward rates indicate the expected short-term (one-period) future interest rate for a specific point along the term structure they reflect the spread on the marginal rate of return that the market requires if it is investing in debt instruments of longer and longer maturities. 

Investors in securities accept the risk that the issuer will default on coupon payments or fail to repay the principal in full on the maturity date. Generally, credit risk is greater for securities with a long maturity, as there is a longer period for the issuer to potentially default. For example, if a company issues 10-year bonds, investors cannot be certain that the company will still exist in 10 years time. It may have failed and gone into liquidation some time before that. That said, there is also risk attached to short-dated debt securities indeed, there have been instances of default by issuers of commercial paper, which is a very short-term instrument. 

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