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Chart of the Week
May 16, 2025
2 MIN READ

Rising term premium a caution sign for markets

The elevated Treasury term premium may reflect growing concern over U.S. debt levels and geopolitical tensions.
Christopher Bole
Vice President, Financial Writer
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Treasury term premium and 10-year Treasury yield

Line chart showing the 10-year Treasury yield and the 10-year Treasury term premium over the past decade. The recent rise in the Treasury yield has been driven by an increase in the term premium, which had been negative throughout most of the past decade. The term premium shows the additional yield investors demand to hold longer-dated Treasuries instead of rolling short-term T- bills. Its recent rise may reflect growing concerns over rising U.S. debt levels and geopolitical tensions.
Source: Bloomberg Intelligence, L.P., as of May 15, 2025.
  • Today’s market backdrop is notably less volatile than it was just a month ago. Despite the rapid recovery, markets continue to flash a caution signal as Treasury yields drift higher.
  • Treasury yields recent rise has been driven in part by an increase in the term premium—the additional yield investors demand to hold longer-dated Treasuries instead of rolling short-term T-bills.
  • Following a decade-plus period during which the term premium was mostly negative, the recent increase may reflect growing concerns over rising U.S. debt levels and geopolitical tensions. This is particularly relevant as Congress debates a large fiscal package that could significantly widen the deficit.
  • For investors, a higher term premium raises the baseline for long-term Treasury yields and suggests a higher-for-longer rate environment. This dynamic may challenge the performance of the traditional 60/40 portfolio, underscoring the importance of seeking alternative sources of income and diversification.
contributing authors
Christopher Bole
Vice President, Financial Writer
view bio
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