HALISTER1: Term Premium Key Force on G-4 Bond Yields, Goldman Sachs Says

Term Premium Key Force on G-4 Bond Yields, Goldman Sachs Says

(Bloomberg) -- The dominant force behind post-financial crisis declines in G-4 long-term sovereign debt yields has been changes in term premium, whose co-movement has also driven the correlation between them, Goldman Sachs strategist Alexander Demyanets wrote in a note Thursday.
  • Term premium, or extra compensation investors demand to hold long-term bonds, remains historically very depressed as a result of G-4 central banks’ quantitative easing programs
  • “Compensation for duration risk in G-4 bond markets is poor,” given low term premium
  • “As QE policies are unwound, term premia should normalize, supporting our bearish view on long-term rates,” Demyanets wrote
  • Goldman Sach’s economists predict Federal Reserve will “telegraph” balance sheet normalization at the December FOMC meeting, with risk skewed toward September
  • NOTE: Minutes released Wednesday from May FOMC meeting included a discussion detailing the likely plan for allowing debt holdings to roll off
To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Jenny Paris

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Alexander Demyanets (Goldman Sachs Group Inc/The)

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