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The real rate of interest is the basic on every day interest rate. Real rate of interest is regardless of the time to maturity. When the real rate is high , all the interest rates will be tend to be higher. The direction of future inflation should be very strongly influences the shape of the term structure. Investors are thinking about lending money for different lengths of time recognize the future inflation value of the dollars that will be returned. Therefore investors demand compensation for the loss in form of higher nominal rates. It is called the inflation premium. The investors believe the rate of inflation will be high in future than long term nominal interest will tend to be higher than short term rates. The term of the structure has to do with interest risk.
Long term bonds have much greater risk of loss resulting from changes in interest rates than do short term bonds. Investors recognize the risk and the demand compensation on the form of higher rates for standing up. This kind of compensation is called the interest rate risk premium. The interest rate risk premium is the longer term maturity and the grater the interest rate risk, so the interest rate premium increases with maturity. Interest rate risk increase at a decreasing rate therefore interest rate premium does grow stronger. The interest rate of inflation is expected to fall in the future, and the expected decline is enough to offset the interest rate risk premium