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September 02, 2026
Partner, Chief Economist
The term premium measures the extra yield investors demand for holding a long-dated bond beyond what expectations for Fed policy alone would justify, which makes it a key market-based gauge of fiscal sustainability and Fed credibility.
Speaking at the last Treasury Market Conference, Treasury Secretary Bessent noted that the US 10-year term premium is basically unchanged. The chart below shows that this is still the case.
Specifically:
1) The New York Fed’s measure of the US 10-year term premium has moved sideways over the past 12 months. On this measure, there has been no deterioration over the past year in how the market prices US fiscal sustainability or Fed credibility.
2) The US term premium currently sits below the term premiums of Japan and Germany. This suggests that the market is less worried about the US fiscal situation compared with the fiscal situation in Germany and Japan.
The bottom line is that this chart pushes back on the idea that the US fiscal situation is having a uniquely large impact on long-term rates, or that Fed credibility is worse today than 12 months ago.
Put differently, the Fed went into 2026 expecting several cuts, and now the FOMC is leaning toward hiking. With this backdrop, it is not surprising that long rates are higher.
Sources: Bloomberg, Macrobond, Apollo Chief Economist
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