‘Dark Matter’ Bond Metric Mesmerizes Wall Street and Washington
- Rising term premium stays Fed’s hand, alters Treasury issuance
- Some say focus on measure makes predicting rate path harder
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It’s the buzz word on Wall Street and in the hallways of the Federal Reserve and Treasury Department. It’s blamed for triggering bond selloffs, shifts in debt auctions and interest-rate policy. That few agree on what exactly it reflects, or how to measure it, seems to matter little — the term premium is a powerful new force in the market.
Typically described as the extra yield investors demand to own longer-term debt instead of rolling over shorter-term securities as they mature, the term premium, in the broadest sense, is seen as protection against unforeseen risks such as inflation and supply-demand shocks, encapsulating everything other than expectations for the path of near-term interest rates.