Term premiums

Term premiums

Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Term Premium

The amount by which the yield-to-maturity of a long-term bond exceeds that of a short-term bond. Because one collects coupons on a long-term bond for a longer period of time, its yield-to-maturity will be more. The amount of a term premium depends on the interest rates of the individual bonds.
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After so many years of zero rates and massive quantitative easing programs suppressing term premiums, the risk of significantly higher US rates may still be underappreciated.
On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence.
Jonathan Wright suggested that another approach to avoiding the problem of the zero lower bound is to lower term premiums through asset purchases, which may be more politically feasible than raising the 2 percent inflation target.
However, there is little empirical evidence for the relationship between r* and bond premiums, particularly for term premiums, which are the primary channel through which asset purchases operate.
People with little prospect of increasing their income sufficiently to pay ever-increasing term premiums face a difficult trade-off.
The Sanders proposal boils down to this: The federal government, Constitution notwithstanding, would impose trillions of dollars in new taxes Sanders prefers the term premiums on nearly all Americans.
Thus, we cannot predict simply from inspection how term premiums on Treasury securities behave following a Fed funds shock.
However, this relationship ignores term premiums and the policies directly aimed at lowering long-term yields in the unconventional policy period.
Crucially, Cluttons believes that through such public transportation infrastructure investments, the government is adding long term premiums to residential values and commercial rents.
The second strand of the literature uses lower-frequency (monthly) data to test the implication of the portfolio balance effect--namely, that there is a positive relationship between bond term premiums (and, consequently, bond yields) and the maturity structure of the publics holding of Treasury debt and long-term Treasury yields (e.
Term premiums were set lower as buyers expected reduced import demand from Saudi Arabia and more supply from the Middle East next year due to new refining capacity and expansion of existing plants, the sources said.
The model includes stochastic shocks to output, potential output, deficits, inflation, and interest rate term premiums and is simulated around an extended WEO baseline for a typical advanced economy.