What is the term premium, and why have long-term yields risen?

The term premium is the extra return investors demand for holding a long-term bond instead of buying a string of short-term bills that cover the same period. It is the part of a 10-year or 30-year Treasury yield that cannot be explained by where investors expect short-term interest rates to go, and it tends to rise when the outlook is more uncertain or when the market has to absorb more long-dated debt.

That distinction matters because long-term yields set the price of mortgages, corporate borrowing and government debt. When the 30-year Treasury yield climbs, it can be because investors expect the Federal Reserve to keep rates higher for longer, because they want more compensation for the risk of tying up money for decades, or both. The term premium is the name for the second part.

How is the term premium measured?

It cannot be observed directly. A bond’s yield is visible on any trading screen, but the market’s true expectation for the path of short-term rates over the next 10 or 30 years is not. Economists therefore estimate the term premium with statistical models that split a yield into an expected-rates component and a residual premium.

“the term premium in yields is defined as yield minus the expected average short rate (over the life of the bond)”

The Fed Board’s best-known estimate follows a model developed by Fed economists Kim and Wright. It uses survey forecasts of the three-month Treasury bill rate alongside market yields, partly to stop the model from attributing nearly every swing in long-term rates to the premium. The Federal Reserve Bank of New York publishes a separate set of Treasury term premium estimates, and different models can produce noticeably different levels.

Three points help in reading these estimates. First, the premium can be negative: the Fed describes bond yields as containing premiums for interest rate risk that could be positive or negative, a situation that arises when investors value long bonds as a hedge enough to accept less than the expected path of short rates. Second, changes are more informative than levels, because model choices shift the level. Third, the Fed itself cautions that term structure models are only approximate and that their output should be interpreted with care. For historical scale, the Kim-Wright data put the 10-year term premium at about 1.8 percentage points at the start of 1990, when the model’s fitted 10-year yield was close to 8 percent.

What makes the term premium rise or fall?

There is no single cause, but the forces most often cited fall into a few groups:

• Inflation uncertainty. If investors are less sure where inflation will settle, they ask for more compensation to hold a fixed coupon for years.
• Supply of long-dated debt. Larger deficits financed with more notes and bonds, rather than bills, leave private investors holding more duration, which can push the premium up.
• Who is buying. Purchases by the Fed, foreign official holders, pension funds and insurers absorb duration; when large buyers step back, the private market has to clear more risk.
• Rate volatility. Bigger, less predictable swings in yields make long bonds riskier to own and finance.
• Hedging value. When Treasuries tend to rally as stocks fall, investors accept a lower premium for that protection; when bonds and stocks fall together, the premium tends to rise.

Why have long-term Treasury yields risen?

This section reflects market and economic data as of the close on November 5, 2026, and will date.

The 10-year Treasury yield ended at 4.837 percent and the 30-year Treasury yield at 5.251 percent. A year earlier the 10-year stood at 4.157 percent and the 30-year at 4.736 percent, increases of about 68 basis points and 52 basis points. Both peaked in early autumn, with the 10-year near 5.29 percent at the end of September and the 30-year near 5.66 percent in early October, before retreating. The 13-week bill yielded 3.987 percent, and the effective federal funds rate has held at 3.88 percent since at least late September, according to Federal Reserve data compiled by FRED.

Not all of that rise is term premium. The 2-year Treasury yield, which tracks expectations for Fed policy more closely, was 4.58 percent on November 4, well above the overnight rate. A gap like that is usually read as the market assigning some chance that policy rates move higher. Inflation supports that reading: in its November 2 economy statement to the Treasury Borrowing Advisory Committee, the Treasury Department said headline CPI rose 3.7 percent over the 12 months through September, up from 3.0 percent a year earlier, with energy driving roughly 40 percent of the increase. Core CPI was 2.6 percent, and headline PCE inflation was 3.6 percent against the Fed’s 2 percent target.

The shape of the yield curve hints at a premium component as well. The spread between 10-year and 2-year yields widened from 0.20 percentage point on September 21 to 0.51 percentage point on October 7, meaning long rates rose faster than short rates during the autumn sell-off, a pattern consistent with a rising term premium. By November 5 the spread had narrowed to 0.38 percentage point. Hedging demand has also been visible: MarketWatch reported that traders moved into Treasuries for safety as a tech-led stock sell-off deepened on November 5, the kind of flow that tends to compress the premium.

How do Treasury auctions affect the 30-year yield?

Auctions are where new supply meets demand, so they are a direct test of how much compensation investors want. On November 4 the Treasury said it would sell $125 billion of securities in its quarterly refunding: $58 billion of 3-year notes on November 9, $42 billion of 10-year notes on November 10 and $25 billion of 30-year bonds on November 12, raising about $28 billion of new cash. Weak demand at a long-bond auction typically shows up as the bond pricing at a higher yield than traders expected, which is one channel through which the term premium shows up in real time.

The Treasury also said it expects to keep note and bond auction sizes unchanged for the next several quarters, while monitoring the Fed’s purchases of Treasury bills and growing private demand for bills. Leaning on bills rather than longer debt limits the amount of duration the private market must absorb, which is why investors watch the refunding statements closely for any change in that guidance.

What should investors watch next?

• Results of the 10-year and 30-year auctions on November 10 and November 12, especially how the final yield compares with pre-auction trading.
• Monthly inflation data, which shape both expected policy rates and the uncertainty premium.
• The spread between 10-year and 2-year yields as a rough, real-time signal of whether long rates are moving for reasons beyond Fed expectations.
• Updated term premium estimates from the Federal Reserve Board and the New York Fed.
• The Treasury’s next quarterly refunding announcement, scheduled for February 3, 2027.

No single indicator separates expectations from the term premium cleanly. Read together, though, they show whether a move in the 30-year Treasury yield reflects a changed view of the Fed or a changed price for the risk of owning long-term debt.