Tobias Adrian, now director of the International Monetary Fund’s monetary and capital markets department, says that based on expanded models developed with colleagues at the IMF, it’s clear that both the nominal and real term premium have “come up dramatically” this year.
“I usually say it’s the direction of change that matters with term premium, but the level now really matters as well” given how sharply its risen, Adrian said. And the models show that the “market implies that real short rates will actually come back down in the future, thus not seeing a higher long-run Fed neutral policy rate.”
This article was provided by Bloomberg News.