Glossary term
Term Premium
The extra yield investors demand for holding longer-maturity bonds; it drives the steepness of the yield curve.
Term Premium is the additional yield investors require to hold a longer-maturity bond instead of rolling shorter ones, compensating for the added duration risk. It is a key component of long-term yields and a primary driver of yield-curve steepness. A rising term premium can lift long-term rates even when policy-rate expectations are unchanged, pressuring duration-sensitive assets. See Duration and Money Temperature 101.