Global Markets Daily Fed Communication And Term Premium

Economics Research 20 August 2026 | 10:31AM EDT

Global Markets Daily: Fed Communication And Term Premium

n The shift in the Fed’s communication approach has supported a pickup in Friedrich Schaper | volatility around the policy path and across the curve in US rates. We think the Goldman Sachs & Co. LLC increased policy uncertainty behind that volatility has contributed to the recent rise in term premium that took long-end yields to multi-cycle highs. n The increase in term premium has come amid signs of sluggish appetite to accumulate long duration exposure through the selloff. In addition to macro risks and policy uncertainty, the broader debt supply backdrop has likely contributed to the cautious demand picture. n Positioning could become a tailwind, as the underweight positioning signal usually implies falling term premium in the following months. We also find that term premium increases driven purely by higher uncertainty tend to decay partially in the following weeks. n Despite these observations, we do not find long-end UST yields as particularly misvalued relative to fundamentals. A change in communication that curtails uncertainty around the policy path and reaction function could support some term premium compression, but a substantial rally likely requires support from a shift in fundamental factors. n In this vein, we view the recently announced increase in liquidity buybacks by Treasury as reflecting greater willingness to actively manage the supply/demand balance for USTs. However, absent some shift in underlying macro drivers of recent volatility, relief could prove relatively short-lived beyond the announcement effect.

Fed Communication And Term Premium

The shift in the Fed’s communication approach has raised uncertainty around the policy path, supporting a pickup in volatility across the curve in US rates (Exhibit 1). While visible throughout the curve, the pickup has been most pronounced at the front-end, suggesting an important role of the reduced transparency in driving that volatility. Higher uncertainty around the policy path typically translates into higher term premium, pointing to the change in Fed communication as a factor behind the recent pick-up in term premium, which in turn has pushed long-end yields to new highs (Exhibit 2).

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Goldman Sachs Global Markets Daily

Exhibit 1: Ambiguity around the Fed’s reaction function Exhibit 2: Higher US yields relative to peers have been has led to a pickup in US rates volatility driven by higher term premium 1m rolling standard deviation of daily changes, 6m US vs G4 10y Term Premium, GS estimate ex-US yields bp/day bp/day bp bp US G4 ex-US Average US EU UK 5 5 40 40 Beginning of Chair Warsh's term

0 0 -40 -40 Aug-25 Nov-25 Feb-26 May-26 Aug-26 Feb-26 Mar-26 Apr-26 May-26 Jun-26 Jul-26 Aug-26

Source: Goldman Sachs Global Investment Research, Goldman Sachs FICC and Source: Goldman Sachs Global Investment Research, Goldman Sachs FICC and Equities Equities

Changes in other typical drivers of volatility—such as inflation and growth expectations, and uncertainty around those expectations—would usually point to lower volatility. We think this underscores the role of the Fed’s new communication approach—which our economists noted risks providing markets with less information and more noise—as a factor contributing to the shift in policy uncertainty and in turn term premium.

The increase in term premium has come alongside signs of limited appetite to accumulate long duration exposure, which has potentially supported the rise in yields. The broader debt supply picture—including elevated corporate borrowing—has likely contributed. While we have argued against an outsized effect from the greater duration supply from credit on the UST curve, we did find that periods of heavier private sector borrowing tend to skew UST yields above a fair value implied by macro fundamentals.

That said, positioning could become a tailwind in weeks ahead, as the signal from underweight duration positioning, as…