Andy Constan, CEO of Damped Spring Advisors, shared his analysis of term premium models on X on Monday, September 28. Constan dismissed single-term premium models as unhelpful, advocating for comprehensive models that incorporate multiple factors. He highlighted a significant reading from his firm's proprietary model, noting, “Today Our model has only been higher in three notable stock market lows.” Constan also articulated a potential bullish outlook for markets, adding, “THE BULL Case is that term premiums are pretty high making holding assets more attractive.”
The discussion around term premiums comes as the bond market experiences volatility. Recent Gokhshtein Media coverage indicates that India state firms scrapped $688 million in bond sales due to spiking yields during rate hike bets. A tariff deal was reported to compress the yield curve, pricing in a lower inflation path. Federal Reserve Governor Cook also recently suggested that AI could drive near-term inflation, adding complexity to yield expectations.
Constan's view implies that the current elevated term premiums might present a compelling opportunity for investors, suggesting a potential bottom or strong support for asset values. Conversely, he noted a bear case where term premiums are not cheap in a longer context, with contractions historically driven only by specific policy shifts or external factors. This suggests that without such catalysts, the current levels might not sustain a prolonged rally.
