How is premium definition used in the example below? What credit rates, bonds or being used?
"Valuation measures show government debt has become more expensive. The term premium, a model created by economists at the Fed, increased to negative 0.39 percent yesterday after reaching negative 0.26 percent on March 19, the least expensive since October. A negative reading indicates investors are willing to accept yields below what's considered fair value. "
The premium as shown in the example above means that government debt has become more attractive. It has attracted more investors and so the "premium" has "increased" from minus 0.26 percent on March 19 to minus 0.38 percent on March 23. This means that for the fourth consecutive day the "premium" on government debt has increased.
Investors are willing to accept less than fair market value because of several reasons. We will consider them later. However, the investors are willing to pay more than the fair value of government debt and this is reflected in the "increase" in "premium" from minus 0.26 percent to ...
This posting gives you an in-depth insight into Term Premium calculation