Term premium: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson (Add link.) |
(Add links.) |
||
Line 26: | Line 26: | ||
* [[Premium]] | * [[Premium]] | ||
* [[Return]] | * [[Return]] | ||
* [[Risk asset]] | |||
* [[Risk-free asset]] | |||
* [[Risk off]] | |||
* [[Risk on]] | |||
* [[Rising yield curve]] | * [[Rising yield curve]] | ||
* [[Term]] | * [[Term]] | ||
Line 31: | Line 35: | ||
* [[Yield curve]] | * [[Yield curve]] | ||
[[Category:Corporate_finance]] | [[Category:Corporate_finance]] | ||
[[Category:Financial_products_and_markets]] | |||
[[Category:Investment]] | [[Category:Investment]] | ||
[[Category:Long_term_funding]] | [[Category:Long_term_funding]] | ||
[[Category: | [[Category:The_business_context]] | ||
Revision as of 04:38, 10 February 2024
Yields.
Term premium is the extra return that investors demand to compensate them for the risk associated with a longer-term bond investment.
It is the main reason for the upward slope of a 'normal' rising yield curve.
- Term premia: models and some stylised facts
- "... long-term interest rates can be broken out into a part that reflects the expected path of short-term interest rates and a term premium.
- ... the latter part represents the compensation, or risk premium, that risk-averse investors demand for holding long-term bonds.
- This compensation arises because the return earned over the short term from holding a long-term bond is risky, whereas it is certain in the short term for a bond that matures over the same short investment horizon.
- While some types of investor, such as pension funds, may consider long-term bonds less risky given their long-term liabilities, most other investors would tend to view them as more risky."
- Bank for International Settlements, Quarterly Review, September 2018.