THE TERM PREMIA RELATIONSHIP IMPLICIT IN THE TERM STRUCTURE OF TREASURY BILLS

This paper considers a single coefficient representation of the term premia relationship that appears in treasury bill yield curves. Term premia are defined as positive or negative maturity-dependent differentials versus the instantaneous nominal spot rate. The term premia function is developed in the context of the Cox, Ingersoll, and Ross [ 3 ] Risk-Averse Preferred Habitat Model and proxies for the degree of risk aversion exhibited by the universe of treasury bill investors at a point in time. Empirical results indicate that term premia are influenced by a set of macroeconomic variables in the expected manner.