Recent studies of the expectations hypothesis of the term structure (EHTS) find evidence in favor of the EHTS using post 1980s US data. This has been attributed to the relative macro stability of this period and greater market efficiency. Using a panel of forecasts for 3monthinterest rates for ten countries we test separately for EHTS and rational expectations. Assuming rationalexpectations holds we find support for the EHTS is illusory due to an offsetting timevarying term premia and nonrational expectations. Previous forecastbasedstudies suggest biased expectations tend to reinforce the effect of a time varying term premium. This change can be understood in the context of Fama's (2006) argument that markets tend to underestimate future spot rates during periods of longrun increases and overestimate during declines.