As a reminder: The term premium really shouldn’t be negative.

There are myriad risks associated with loaning money over longer periods versus shorter timeframes, and investors should be compensated for taking on those risks. They could, after all, just roll short-term debt issued by the same borrower instead.

If the term premium’s negative, it reflects some manner of distortion. That doesn’t mean a negative term premium’s inexplicable, but the occurrence (and particularly the persistence) of the phenomenon does constitute a paradox.

In that context, it’s worth noting that for all the hullabaloo, there’s nothing at all strange about a 75bps 10-year Treasury term premium. In fact, that seems an entirely reasonable ask when it comes to loaning money over a decade to a US government that’s arguably experiencing terminal institutional decay. (Some might argue 75bps is outright paltry under the circumstances.)

Morgan Stanley’s Mike Wilson, who on Monday argued that the rise in long-term US yields has more to do with high nominal growth than it does with actual deficit and debt concerns, reminded investors that a modestly positive term premium’s hardly indicative of a crisis, particularly if it’s not evidencing an inclination to keep rising.

The figure on the left, above, gives you the big picture historical context. The figure on the right zooms in on the past half a dozen years.

“The term premium has risen since the secular shift in inflation in 2020 [which] makes sense as investors are now more uncertain about the trajectory of inflation in the future than they were in the 20 years leading up to COVID,” Wilson wrote, adding that if the term premium “stall[s] out around current levels,” it won’t challenge assumptions about Treasury’s “ability to finance [America’s] deficits.

“An 80bps term premium hardly seems alarming,” he went on. That depends on one’s definition of “alarming,” but I certainly agree with Wilson’s (unspoken) contention that there isn’t anything surprising about investors demanding a three-quarter-point premium for lending money over long periods in an era defined by de-globalization and the demise of a long peace “enforced by a global hegemon.”