Long-term government bond yields in the United States and Japan climbed to multi-decade highs this year, even at times when short-term rates were steady or falling. A large part of the explanation lies in a concept bond investors talk about constantly but rarely see directly: the term premium.

Understanding it helps explain why mortgage rates, corporate borrowing costs and the prices of long-dated bonds held by Asian insurers and pension funds can move sharply without any change in central bank policy.

What the term premium measures

The yield on a 10-year or 30-year government bond can be thought of as having two parts. The first is the average short-term interest rate investors expect over the life of the bond. The second is the extra return they demand for tying up money for that long instead of rolling over short-term debt. That second part is the term premium.

It compensates for risks that grow with time: that inflation will run hotter than expected, that governments will flood the market with new debt, or that prices will swing so much that investors are forced to sell at a loss. When those worries grow, buyers ask for more, and long-term yields can rise even if expectations for policy rates stay the same.

The premium cannot be observed directly. It has to be estimated with models, and estimates differ. One widely followed model, run by the Federal Reserve Bank of New York, put the U.S. 10-year term premium at around 0.7% in December 2025, Bloomberg reported at the time.

What pushed it up in 2026

The clearest recent example came in late September. On Sept. 29, the 30-year Treasury yield briefly rose above 5.6%, its highest since June 2002, while the two-year yield fell more than 3 basis points to 4.891%, Wealth Professional reported, citing CNBC data for the two-year move. When long yields rise as short yields fall, the pressure is coming from the long end of the curve rather than from expectations about the next few Federal Reserve meetings.

Investors were focused on inflation and worried about U.S. fiscal deficits and Treasury supply, which was pushing up the term premium, JoAnne Bianco of BondBloxx Investment Management told CNBC, as reported by Wealth Professional. Volatility added to the risk: the ICE BofA MOVE index, a gauge of expected swings in Treasury prices, rose almost 30% in September, according to the same report.

Governments have tools to push back, with mixed results. Treasury Secretary Scott Bessent increased Treasury buybacks to restrain long-term yields, but the move was widely seen as having little effect, Trading Economics reported in late September.

Japan shows the supply side even more clearly. Fears of oversupply drove super-long yields to records, and Japan's Ministry of Finance was likely to cut new super-long issuance in the fiscal year starting April 2026 to about 17 trillion yen, the lowest since 2009, two government sources told Reuters in December 2025. The ministry had already cut its plan for super-long bonds in June 2025 to 21.4 trillion yen from 24.6 trillion yen after a selloff, according to the same report.

The gap between short and long Japanese yields remains wide. On Sept. 30, the two-year yield was 1.93% and the 30-year yield 4.15%, Reuters reported. Japan's yield increases have been steeper than those in the U.S. or major European economies, The Herald Business noted, as markets questioned how Prime Minister Sanae Takaichi's spending plans would be funded.

Not every suspect has proved guilty. Some investors have blamed the surge in bond sales by large AI and cloud companies for crowding Treasuries out of portfolios. Lotfi Karoui of PIMCO has argued the evidence is weak, and an event study of six surprise hyperscaler bond deals found no statistically significant move in 10-year yields, the term premium or swap spreads, according to Wealth Professional.

Why it matters in Asia

Asian borrowers that sell dollar bonds price them against Treasuries, so a higher U.S. term premium raises their costs even if the Fed stands still. Investors with long-dated holdings, such as insurers and pension funds, also see the largest price swings, because a bond's price falls further for a given rise in yield the longer its maturity.

Consumers feel it too. In Canada, for example, fixed-rate mortgages and car loans are tied to five-year and 10-year government bonds, Wealth Professional noted, citing CBC, which is why Bank of Canada Governor Tiff Macklem has cited “spillover” from global long-term yields.

Signals to watch include the results of long-dated bond auctions, government issuance plans such as Japan's for the next fiscal year, and volatility gauges like the MOVE index. When those point to calmer conditions and lighter supply, the term premium tends to shrink, and long-term yields can fall even without help from central banks.