What is the term premium?
The term of the premium is the level of return on asset, which provides motivation to invest in this asset, although it is a long -term investment that can also be of a non -visual nature. In a situation where the investor evaluates two similar assets, but one matures later than the other may be the one that takes longer than ripens, accompanied by a term bonus. If this is not the case, the investor will be more inclined to take over short -term investments because he will generate profit faster and the investor's money will not be locked for a longer period of time. This is the result of the bonus term; These investments must bring more or investors do not consider attractive. Changes in the yield curve appear in response to economic pressures, such as recession, slow movement in the area of investment and other fiction.
From the investor's point of view, it has submitted two identical investments of different lengths of length, the short -term investment will be more attractive. It allows the investor to earn money and then move and release capital for other businesses. Investors therefore demand the termOU premium for long -term investments to provide them with a reason for investing in these bonds and other securities.
This concept is also related to the liquidity bonus. The more liquid is the investment, the easier it is to transfer or sell. Liquid Assets attracts more for investors. If the asset is unique, investors may expect to be offered a liquidity bonus as a form of replacement. The offering investment offers a bonus that is designed to attract investors without threatening the investment tool.
Investors are more likely to risk short -term investments because they believe that in a short -term forecast they can make more accurate predictions in the market direction. As a result, in addition to arrival with a higher return rate in the form of deadline, long -term investments also aim at a less risky party. Investors are less inclined to take advantage of the risk of risk,They will have to take care of for 15 or 20 years before the risk that will be a problem for six to 18 months.