QUICK DEFINITION
Term Premium is the extra compensation investors require for holding longer-duration bonds instead of repeatedly investing in short-term instruments.
WHY IT MATTERS
Why Term Premium matters in bond markets
Term premium helps explain why long-term yields can move even when expected future policy rates change little.
MARKET CONTEXT
How to think about it
Bond investors use term premium as part of a wider framework that links prices, yields, cash flows, liquidity and risk. The concept should therefore be read together with its related terms rather than as an isolated definition.
Is Term Premium important for fixed-income investors?
← Back to the Bond Market Glossary Yes. Term premium helps explain why long-term yields can move even when expected future policy rates change little.