Term premium

How it is used

Use when separating expected future short rates from other yield components; estimates depend on models.

Example sentences

1. The estimated term premium rose even though expected policy rates barely changed.

   Long yields can move for reasons beyond expected short rates.

2. Two models produced different term premium estimates for the same bond yield.

   The component is estimated rather than directly quoted in the market.

Common collocations

• estimated term premium
• term premium model

Related terms

• yieldThe income an investment earns, shown as a percentage of its price or value. For a bond, it is the return an investor gets by buying at the current price.
• policy rateThe main interest rate set by a central bank to steer the cost of money in the economy and bring inflation towards its target.

More terms: Interest & Exchange Rates

• interest rate
• fixed rate
• variable rate
• APR
• exchange rate
• foreign exchange
• compound interest
• maturity
• basis point
• inflation
• spread
• accrue