by Masaki Kondo
The risk premium to hold 10-year Treasuries has climbed to the highest in a decade on concern the Trump administration’s unpredictable tariff policy will sap investor confidence in US government bonds.
The so-called term premium on 10-year notes climbed to 0.71% last week, a level last seen in September 2014, according to the latest data from the Federal Reserve Bank of New York. The term premium is the compensation investors demand to bear the risk that interest rates will fluctuate over the life of the security.
One of the factors pushing up term premiums is the growing unpredictability of US economic policy. An index of such uncertainty surged toward a record this month after President Donald Trump announced sweeping tariffs and then backtracked on some of them. Proposals for tax cuts and a potential need to increase the US government debt limit are also inflating Treasury term premiums.
“There are real fundamental concerns driving yields higher, rather than just investors exiting positions amid market volatility,” Ed Yardeni, the founder of Yardeni Research in New York, wrote in a note. “Perhaps the likelihood of a new debt-ceiling bill that blows out the deficit plus policy uncertainty are raising the term premium on bonds.”
Treasuries handed investors a loss of 2.4% last week, the biggest one-week decline since 2001, based on a Bloomberg index. They gained 0.5% on Monday, snapping a five-day run of losses. Treasury Secretary Scott Bessent has rejected speculation other nations are dumping their holdings of US sovereign debt, and said his department has a “big toolkit” that can be rolled out if needed.
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