Chapter 7. Forecasting Interest Rates This chapter discusses what the asset pricing literature concludes about the forecastability of interest rates. It outlines forecasting methodologies implied by this literature including dynamic no arbitrage term structure models and their macro finance extensions. It also reviews the empirical evidence concerning the predictability of future yields on Treasury bonds and future excess returns to holding these bonds. In particular it critically evaluates theory and evidence that variables other than current bond yields are useful in forecasting.