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The Term Premium’s Back
If you think "way" back to this time last year, you might vaguely recall something about a term premium scare.
Beginning in late July of 2023, the Treasury term premium began to rise out of negative territory (where it shouldn't be in the first place, according to theory anyway). By October of 2023, it was positive to the tune of nearly 50bps.
The sharp increase over just a few months was a big story. The move reflected a combination of factors which together comprised an ostensibly compelling
The term premium started its last climb in June, when Biden had his bad debate performance, and reached its last high point in July, when Biden dropped out. Then it declined as Harris looked more competitive, and is rising again as Harris has seemingly failed to gain a clear lead in key states and the election risk becomes imminent. I don’t think that is coincidence. I think the single biggest factor in the future inflation and deficit outlook is the election.