How Rising Rates and US Debt Brought Back Term Premiums
www.bloomberg.com/news/articles/2017-10-30/what-s-a-term-premium-and-where-did-mine-go-quicktake-q-a?utm_medium=cpc_search&utm_campaign=NB_ENG_DSAXX_DSAXXXXXXXXXX_EVG_XXXX_XXX_Y0469_EN_EN_X_BLOM_GO_SE_XXX_XXXXXXXXXX&gclid=CjwKCAjwp8OpBhAFEiwAG7NaEmR0RRhVF8YLPlVVixqaE2FtUiokcMOsXkTY-PgATvsNA4CywfM0FRoCSIkQAvD_BwE&gclsrc=aw.ds
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By one Fed model, the term premium for 10-year Treasury notes has averaged about 1.5 percentage points since 1961
One is changes in the demand for or supply of bonds,
It’s one of three contributors to a bond’s yield. (The other two are market expectations for interest rates and inflation.)
Put another way, it’s the difference between the yield compensation investors require for locking up their money for an extended period relative to what they would get by rolling over short-term instruments for the same amount of time.
The other is inflation, which reduces the real value of future bond payments
That gap includes the term premium along with other variables
including a premium for liquidity that reflects how hard or easy it is to trade the securities.
es. There’s also a supply-demand dynamic,
with the Fed now shrinking its portfolio of debt holdings
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