Educational purposes only. This content does not constitute investment advice. Read our disclaimer
StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The extra yield investors demand for holding a long-term bond instead of rolling over short-term ones — compensation for the risk that rates or inflation shift over the years. It helps explain why long-term yields differ from the Fed's short-term rate.
Why It Matters
Long-term yields like the 10-year Treasury drive mortgage rates and stock valuations, and they aren't set directly by the Fed — they reflect expected future rates plus a term premium. When markets believe earnings growth will outrun that premium, stocks can keep rising even with elevated yields. Watching the term premium helps explain big moves the Fed didn't cause.
Key Points
- Extra yield for locking up money longer.
- Part of why the 10-year yield is not the same as the fed funds rate.
- A low or negative term premium can flatten the yield curve.
Related Terms
Common Questions
The extra yield investors demand for holding a long-term bond instead of rolling over short-term ones — compensation for the risk that rates or inflation shift over the years. It helps explain why long-term yields differ from the Fed's short-term rate. Long-term yields like the 10-year Treasury drive mortgage rates and stock valuations, and they aren't set directly by the Fed — they reflect expected future rates plus a term premium. When markets believe earnings growth will outrun that premium, stocks can keep rising even with elevated yields.
Long-term yields like the 10-year Treasury drive mortgage rates and stock valuations, and they aren't set directly by the Fed — they reflect expected future rates plus a term premium. When markets believe earnings growth will outrun that premium, stocks can keep rising even with elevated yields. Watching the term premium helps explain big moves the Fed didn't cause.
Extra yield for locking up money longer.
Part of why the 10-year yield is not the same as the fed funds rate.
A low or negative term premium can flatten the yield curve.