Term structure (probability term structure)

Term structure describes how the market's implied probability for the same underlying event changes across different expiry dates. In prediction markets, that means comparing a contract on, say, whether the Fed cuts rates, priced across several different meeting dates (near-term, mid-term, and further out) to see whether the market's confidence in that outcome is rising, falling, or holding roughly steady as the timeline extends. The concept carries over from other markets too. Any time the same underlying question can be priced across multiple future dates, the resulting curve of probabilities is a term structure.

A rising term structure, probability increasing at each successive expiry, suggests the market expects an outcome to become more likely as more information arrives before each later date, or simply that a longer window gives more opportunity for the event to occur. A flat term structure suggests confidence isn't really a function of time at all for that question. The market thinks it knows roughly what happens regardless of which date settles first. A term structure that inverts partway out, high near-term probability that drops at a later date, often reflects a specific near-term catalyst that isn't expected to persist.

Term structure describes market pricing, not the actual probability of the event. It can be wrong, and it changes constantly as new information arrives between now and each expiry. It also doesn't explain why the curve is shaped the way it is. Reading the reason behind a rising or falling structure requires knowing what's actually scheduled to happen between now and each expiry date, information the shape of the curve alone doesn't provide. And thin trading in far-dated contracts can distort the far end of the curve without reflecting a real shift in collective view.

Suppose a contract on a rate cut at the next Fed meeting prices at 30%, the same outcome at the meeting after that prices at 55%, and the one after that at 68%. That rising term structure says the market currently expects the case for a cut to build over time rather than resolve immediately, perhaps because incoming economic data is expected to soften gradually. If the near-term contract instead priced at 70% and the following ones stepped down to 40% and 25%, that flips the read entirely. The market would be pricing a near-term cut as likely, with the odds of further cuts after that fading rather than building.