Several theory on term structure will be providing us details about how the interest rates on bonds are correlated as there will be expectation theory along with liquidity premium theory and segmentation theory.

Liquidity premium theory advocates that all the bonds are long term bonds will be providing with additional liquidity premium as they are less liquid so they should be offering with higher interest rate.

Expectations theory advocate that long term bonds will be based upon the the expectations of the interest of the short-term bonds of the investors so long term interest rates on bonds are reflection of the expectation of the investors of the rates in short term.

Segmentation theory will reflect that rate of interest on different bonds are completely independent of each other and they will be providing with different rates at different types.

Three empirical evidence about interest rates are as follows-

A. The interest rates is most often concave, than not and upward sloping.

B. Interest rates on bonds of different nature are moving together.

C. When the interest rates are low, yield curve is upward sloping and vice versa.

It is according to the expectations theory whereas segmentation theory is not applicable and liquidity premium theory is also applicable.