The Federal Reserve measure called the excess bond premium is the residual component of corporate bond spreads after accounting for expected default losses and is used as a gauge of bond-investor risk sentiment. This is a model-based Federal Reserve measure, not a synonym for the entire credit spread and not a universally fixed formula across all research settings.
ReviewedEvidence1 sourceSectionPhrases & Idioms
Quick answer
The Federal Reserve measure called the excess bond premium is the residual component of corporate bond spreads after accounting for expected default losses and is used as a gauge of bond-investor risk sentiment.
Key details
Canonical Formexcess bond premium
Core MeaningThe Federal Reserve measure called the excess bond premium is the residual component of corporate bond spreads after accounting for expected default losses and is used as a gauge of bond-investor risk sentiment.
Further guidance
History Boundary
Current authoritative financial meaning is published without claiming an exact inventor, coinage date, or absolute first use.
Meaning
The Federal Reserve measure called the excess bond premium is the residual component of corporate bond spreads after accounting for expected default losses and is used as a gauge of bond-investor risk sentiment.
Usage Boundary
This is a model-based Federal Reserve measure, not a synonym for the entire credit spread and not a universally fixed formula across all research settings.
Sources and evidence
Sources are shown with the role they play in this guide. Historical or style-sensitive claims are kept within the evidence boundary described above.
A “liquidity premium” compensates investors for lower market liquidity. The St. Louis Fed illustrates it with a liquidity spread between assets matched on maturity and safety but differing in liquidity.
A “risk premium” is the additional expected return investors require as compensation for bearing risk relative to a safer benchmark. The specific premium depends on the asset and risk being measured, and many risk premiums are estimated rather than directly observed.
A “term premium” is compensation embedded in longer-term interest rates beyond the expected path of short rates. The exact measure is model-dependent; the Federal Reserve source explicitly notes alternative definitions and a convexity component.
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