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A Systematic View on Term Premia

In: The Yield Curve and Financial Risk Premia

Author

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  • Felix Geiger

    (University of Hohenheim)

Abstract

In recent years, the concept of term premia has become a focus of attention for academics, policy makers as well as the investment community. This heightened attention was initially triggered by the puzzling behavior of long-term interest rates in the Unites States and in other industrialized countries (Greenspan, 2005). The interest-rate conundrum manifested itself in stable and even falling long-term bond yields despite a reversal in the short-term FED funds cycle. Over the period between June 2004 and February 2005, the FED decided to increase the target rate by over 120 basis points. Over the same time, the 10-year treasury rate lost temporarily over 100 basis points. Among the global saving glut, declining inflation expectations, reduced global macroeconomic and financial uncertainty were cited as explanations attempts, shrinking bond term premia though were the most promising fact to capture the conundrum within a coherent macroeconomic framework (Kim and Wright, 2005; Rudebusch et al., 2006; Backus and Wright, 2007).

Suggested Citation

  • Felix Geiger, 2011. "A Systematic View on Term Premia," Lecture Notes in Economics and Mathematical Systems, in: The Yield Curve and Financial Risk Premia, chapter 0, pages 83-114, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-21575-9_4
    DOI: 10.1007/978-3-642-21575-9_4
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