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Running head; INTEREST RATE 1
Interest Rates
Student’s Name
Institution of Affiliation
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INTEREST RATE 2
Interest rates
The US 10-year US treasury term premium has generally remained flat since 2008-2009
financial crises. The hike in 2008-2009 can be attributed to increased investment on the short-
end yield compared to the long-end due to the financial crisis At the time. Some of the likely
causes attributed to the decline in the term premiums include a low premium on the
compensation where the fixed income investors receiving very minimal compensation on the
future uncertainty around the central bank policy, growth shocks, and inflation. The term
premium has fallen below zero overtime which shows how the investors are under-compensated
for the long horizon risks. Some of the reasons for the flattening of term premium and for it to
fall under zero are due to inflation shocks or lack of recent growth. Secondly, technological
advancement is another cause which usually leads to less or lower volatile inflation. Finally, the
flattening can also be attributed to the central bank adoption of the zero interest rate, quantitative
easing, and forward guidance. However, there are expectations that this will change if the
investor considers rotating the hedge long-dated government bonds to shorter-dated ones
(Balakrishnan & Tulin, 2006).
Australian 10-year treasury term continues to decline overtime currently falling under zero. This
can be attributed to the excess return investors increasingly investing in the long-term bond and
focusing less on the short term bond. Some of the key factors which are attributed to these
composed of economic forecasting, sovereign debt management, and the central bank policy
discussions especially the quantitative easing program (Wright, 2011).
Conclusion
Therefore, there has been a significant decline in the term premiums which can be attributed to
the increased investment on the long-term bonds compared to the short-term bond. Therefore,
there has been a fall in decline in term premiums due to the under compensation of investors of
the long horizon risks.
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INTEREST RATE 3
References
Balakrishnan, R., & Tulin, V. (2006). US Dollar Risk Premiums and Capital Flows (No. 6-160).
International Monetary Fund.
Wright, J. H. (2011). Term premia and inflation uncertainty: Empirical evidence from an
international panel dataset. American Economic Review, 101(4), 1514-34.

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1 Running head; INTEREST RATE Interest Rates Student’s Name Institution of Affiliation 2 INTEREST RATE Interest rates The US 10-year US treasury term premium has generally remained flat since 2008-2009 financial crises. The hike in 2008-2009 can be attributed to increased investment on the shortend yield compared to the long-end due to the financial crisis At the time. Some of the likely causes attributed to the decline in the term premiums include a low premium on the compensation where the fixed income investors receiving very minimal compensation on the future uncertainty around the central bank policy, growth shocks, and inflation. The term premium has fallen below zero overtime which shows how the investors are under-compensated for the long horizon risks. Some of the reasons for the flattening of term premium and for it to fall under zero are due to inflation shocks or lack of recent growth. Secondly, technological advancement is another cause which usually leads to less or lower volatile inflation. Finally, the flattening can also be attributed to the central bank adoption of the zero interest rate, quantitative easing, and forward guidance. However, there are expectations that this will change if the investor considers rotating the hedge long-dated government bonds to shorter-dated ones (Balakrishnan & Tulin, 2006). Australian 10-year treasury term continues to decline overtime currently falling under zero. This can be attributed to the excess return investors increasingly investing in the long-term bond and focusing less on the short term bond. Some of the key factors which are attributed to these composed of economic forecasting, sovereign debt management, and the central bank policy discussions especially the quantitative easing program (Wright, 2011). Conclusion Therefore, there has been a significant decline in the term premiums which can be attributed to the increased investment on the long-term bonds compared to the short-term bond. Therefore, there has been a fall in decline in term premiums due to the under compensation of investors of the long horizon risks. 3 INTEREST RATE References Balakrishnan, R., & Tulin, V. (2006). US Dollar Risk Premiums and Capital Flows (No. 6-160). International Monetary Fund. Wright, J. H. (2011). Term premia and inflation uncertainty: Empirical evidence from an international panel dataset. American Economic Review, 101(4), 1514-34. Name: Description: ...
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