MEASURED BY HELIOUS
2s10s +45bp
as of close · live on the rates board
Term Premium
The term premium is the extra yield investors want for holding a long bond instead of rolling short-term bills over the same stretch of time. Split a 10-year yield in two and you get the average short rate the market expects over the next decade, plus the term premium. That second piece pays you for the things nobody can pin down that far out: inflation, how much paper Treasury ends up selling, and the chance the rate path is simply wrong.
That is why the long end sometimes moves when Fed expectations have not. If 10-year yields jump and cut pricing has not budged, usually after a heavy refunding announcement or a scare about inflation staying sticky, term premium is what repriced. Nobody can see it directly, so the market leans on model estimates like the New York Fed's ACM series. ACM sat negative for much of the 2010s and rebuilt toward positive territory in the mid-2020s.
When term premium rises, the long end sells off harder than the front. That is a bear steepening. Term premium moves mainly on how much Treasury issues, whether foreign demand is stepping up or backing away, and whether the Fed is buying bonds under QE or shrinking its holdings under QT.
Say the 10-year yields 4.35% and fed funds futures imply an average policy rate of 3.60% over ten years. That leaves roughly 75bp of term premium. Treasury then announces coupon sizes bigger than expected and the 10-year rises to 4.50% with no change in the expected Fed path. Those 15bp are a term premium shock, and 2s10s bear steepens with it.
On the Helious desk right now
FAQ
What is term premium?
The extra yield investors want for holding a long bond instead of rolling short ones, on top of what they expect the policy rate to average. You are paid to carry duration risk: inflation nobody can forecast, supply nobody controls, and a rate path that may turn out wrong.
What makes term premium rise?
Heavier long-end issuance, inflation uncertainty, and doubt about fiscal policy. While term premium is building, the long end sells off even though the market has not changed its view on the Fed, which on the curve looks like a bear steepener. Helious names which regime is running right now on the rates board.
How do I see term premium in the market?
Watch the long end move while the front end sits still. Then watch the tail on 30-year auctions, where the auction prices worse than the market expected, and the indirect share. Reluctance to hold duration shows up there first. Helious publishes both on the 30-Year Bond hub.