Term Premium
Term premium is the extra compensation investors demand for holding longer-term bonds instead of rolling short-term debt, reflecting duration risk, uncertainty, and market structure.
Definition
Term Premium refers to term bonds instead of rolling short-term debt, reflecting duration risk, uncertainty, and market structure. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Policy-sensitive rates set the discount factor for almost every other asset class. When term bonds instead of rolling short-term debt, reflecting duration risk, uncertainty, and market structure shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what term premium is saying. If term bonds instead of rolling short-term debt, reflecting duration risk, uncertainty, and market structure moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Read spot, forwards, and real vs nominal together — one leg alone invents a story. Prefer a short written null hypothesis for Term Premium: what would falsify the current reading in the next window?