medium · Debt Capital Markets pricing-yields-curve
How does the 'term premium' typically affect the shape of the yield curve?
- It produces pronounced 'humps' in the curve around the 5-year and 10-year benchmark maturities.
- It pins the short end of the curve directly to the prevailing overnight central-bank policy rate.
- It causes the curve to invert whenever inflation expectations happen to run very high.
- It adds an upward slope as compensation for the increased price risk of longer-term bonds.
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