Term premium – or the difference in the yields on 10-year government security (G-sec) and short-term treasury bills (T-bill) – has hovered above 100 basis points (bps) for two years now. And for the past three months or so, this ‘spread’ has surged to more than 150 bps. That compares with the ‘trend’ of 40-50 bps seen earlier.
Interestingly, the term premium has deviated from the trend only twice in the past decade, and both times because of external shock. It then reverted to type reasonably quickly.
This time around, home-grown stress has been the cause, and there seems to be nothing around to help reverse the course. Especially since the Centre and the states are not just borrowing more, but for longer, too.
To know more about the reasons behind the rise in term premium, read on ..