Riskpremiums

Chart of the month

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One reason put forward by both the Fed chairman Alan Greenspan and the ECB president Jean-Claude Trichet to try to explain persistently low bond yields is that risk premiums have decreased. Unfortunately, verifying this statement is not easy as risk premiums are not clearly defined, let alone measured.

But Fed researcher Brian Sack has developed an interesting way to derive the risk premium or, more precisely, the term premium embedded in three-month Eurodollar futures contracts. His aim is t