Paris Panthéon by Jean-Pierre Lavoie

Over a period of 30 years, we have developed our expertise on what determines the risk premia observed in the markets.  For practitioners, this short paper presents in a simple way our conclusions on certain market dysfunctions and why sooner or later the methods used in asset valuation will change dramatically. In some way, the recent volatility in the US Treasuries market illustrates the difficulty for the markets to adapt to lasting changes in the short-term risk premia demanded by investors.

More operationally, thanks to our better understanding of the dynamics of risk premia, we have developed a model for extracting risk premia on US Treasury bonds that is much more efficient than existing models. Everyone is talking about “term premium” or “buy-and-hold” risk premia today, but this is where you will find the most realistic daily estimates!

This market plays a central role in the valuation of all other assets. This is especially true today in a context of high inflation and tighter monetary policies.

We are available to present our original work to financial professionals (practitioners or academics) interested in the evaluation of risk premia. You can contact us at contact@riskpremium.com

See USTreasuries-06122023 for an analysis of the US yield curve in the most recent trading day, in connection with published news.

Past analysis are available on our daily monitoring page.

The main results, also presented in these two graphs, are available in the excel file RiskPremia-UST-V

The expected rates and risk premia (graphs and excel file) have been updated with the December 6, 2023 session.

See aslo Our Guide to Understand (And Trade) The US Treasuries Yield Curve.

Sur une période de 30 ans, nous avons développé notre expertise sur ce qui détermine les primes de risque observées sur les marchés.  Pour les praticiens, ce court papier présente de façon simple nos conclusions sur certains dysfonctionnements des marchés et pourquoi tôt ou tard les méthodes employées en matière de valorisation des actifs changeront de façon spectaculaire. D’une certaine manière, la récente volatilité du marché des bons du Trésor américain illustre bien la difficulté pour le marché de s’adapter aux changements durables des primes de risque de court terme exigées par les investisseurs.

De façon plus opérationnelle, grâce à notre meilleure compréhension de la dynamique des primes de risque, nous avons développé un modèle d’extraction des primes de risque sur les obligations du Trésor américain beaucoup plus efficace que les modèles existants. Tout le monde parle aujourd’hui des “term premium” ou des primes de risque “buy-and-hold”, mais c’est ici que vous trouverez les estimations quotidiennes les plus réalistes!

Ce marché joue un rôle central dans la valorisation de tous les autres actifs. C’est particulièrement vrai aujourd’hui dans un contexte d’inflation élevée et de durcissement des politiques monétaires.

Nous sommes disponibles pour présenter nos travaux originaux aux professionnels de la finance (praticiens ou académiques) intéressés par l’évaluation des primes de risque. Vous pouvez nous contacter à contact@riskpremium.com

Une analyse quotidienne des déformations de la courbe des taux d’intérêt américains est disponible ici.

Les taux anticipés et les primes de risque (graphiques et ficher excel) sont mis à jour quotidiennement après la fermeture des marchés américains.

Voir aussi Our Guide to Understand (And Trade) The US Treasuries Yield Curve.

What Is New ?

  • What happened in October in the US Treasuries market?

    Between the end of June and the end of October, the yield on the 10-year US Treasury increased by more than 100 bps to reach levels not seen since the summer of 2007. This note attempts to explain this impressive increase, …
  • Changing risk premia and asset pricing inefficiencies

    Changes in risk premia demanded by investors is one of the main reasons for asset price volatility. But can these evolutions justify the extreme movements that we often observe between clear undervaluation and overvaluation? In this new article, we emphasize …
  • The banking crisis: the real causes and how to stop it.

    This banking crisis has two origins. The first is well understood and the second is not. The most obvious is that some (many?) banks have not properly managed their interest rate risk. The second, less obvious, reason is the flawed …
  • A very strange Nobel Prize….

    Diamond and Dybvig (1983) is one of the most frequently quoted papers in financial economics. Thus, it may seem natural that forty years later the authors finally receive the “Nobel prize”. Yet this article is an example of financial economics …
  • Our guide to understand (and trade) the US Treasuries yield curve.

    Voir notre guide en français pour une discussion des déterminants des taux d’intérêt sur les obligations longues, et une présentation des indicateurs que nous publions tous les jours. Les taux anticipés et les primes de risque (graphiques et fichier excel) sont …

Key Background Papers

  • Changing risk premia and asset pricing inefficiencies

    Changes in risk premia demanded by investors is one of the main reasons for asset price volatility. But can these evolutions justify the extreme movements that we often observe between clear undervaluation and overvaluation? In this new article, we emphasize …
  • Our guide to understand (and trade) the US Treasuries yield curve.

    Voir notre guide en français pour une discussion des déterminants des taux d’intérêt sur les obligations longues, et une présentation des indicateurs que nous publions tous les jours. Les taux anticipés et les primes de risque (graphiques et fichier excel) sont …
  • How markets price risks? Non-technical presentation.

    Our Yield Curve Model provides some key original insights on how markets price risks. But the reference paper is long and technical! We provide here a non-technical summary of the lessons we have learnt from this analysis of the US Treasuries market. …
  • How Markets price risks? Key insights from an analysis of the US Treasuries market.

    When there is a sustained change in required excess returns relative to T-bills, investors often miss structural or quasi-structural changes in risk premia and base their decisions on a biased valuation methodology. We consider this recurring weakness of the fundamentalist …
  • The Four Risk Premia

    15 October 2018  One of the difficulties of risk premia analysis is that the concept of risk premium is somewhat ambiguous. For a given asset class, there are at least four risk premia that can be analyzed (“historical”, “spot”, “valuation”, …

Latest Market Analysis

  • December 6th, 2023 – Market Analysis

    You will find in the file below our market analysis of the day. Detailed analysis of the US Treasuries market (at US market close): USTreasuries-06122023 Other markets (at European market close):
  • December 5th, 2023 – Market Analysis

    You will find in the file below our market analysis of the day. Detailed analysis of the US Treasuries market (at US market close): USTreasuries-05122023 Other markets (at European market close):
  • December 4th, 2023 – Market Analysis

    You will find in the file below our market analysis of the day. Detailed analysis of the US Treasuries market (at US market close): USTreasuries-04122023 Other markets (at European market close):

Weekly risk premia analysis for 10-year US Treasuries*

 

* Contributions of risk premia (RP) and Fed funds rates expectations (re) to daily changes in the US 10-year yield / November 27 – December 1, 2023