In periods of heightened economic and political risk, investors demand higher risk premiums to hold stocks.
For Wall Street to hum, we need to see risk premiums come in more than 100 basis points.
The 2005-2010 average difference in risk premiums is 386 bp and the February 10 differential is 264 bp.
Investors are not yet charging higher risk premiums on government borrowing to take account of these demographic risks.
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Fixed income opportunities in utilities have also been tremendous, as shrinking risk premiums make bonds, preferreds and convertibles more attractive.
Cameron Crise, an analyst at Warburg Dillon Read, has tried to do this by making use of equity risk premiums.
The twin crises of Europe undercapitalized banks and massive risk premiums on sovereign debt can not be tackled independently.
These factors plus others are used in a valuation model to create an estimate for risk premiums over the next 30 years.
If market participants come to doubt these prices or their reliance on these prices proves fleeting risk premiums across asset classes and geographies could move unexpectedly.
The program was aimed at spurring the economy by lowering longer-term interest rates of Japanese government bonds and reducing risk premiums on corporate bonds.
So QE at this point represents little but an effort to drive risk premiums to levels that are inadequate to compensate investors for risk.
So expect unrest and revolution to keep spreading throughout the Middle East, and expect risk premiums to keep goosing the price of oil and gas.
However, the enthusiasm for the euro could wane if skittish capital markets push the spread of Italian risk premiums over Germany to even higher levels.
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After the Greek election, the risk premiums for downside protection have gone from overpriced to very cheap, and we think the risks have gone up.
And the euro will recover against the dollar, argues Mr Crise, only if the gap between equity risk premiums in America and Europe is closed.
If we prefer to have our central bank do our defaulting on our behalf, then eventually inflation risk premiums will reveal themselves throughout the yield curve.
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Risk premiums for kidnap for ransom insurance or terrorism insurance will be reviewed across the north Africa region in light of the attacks, says Mr Robson.
This is a sensible and POSITIVE outcome as risk premiums represent the cost that hedgers pay to speculators to bear the risk they want to avoid.
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The ECB president said that if high sovereign yields hurt the transmission channels for monetary policy, keeping risk premiums under control would come within the bank's mandate.
He points out that risk premiums reached historic highs in August and if equities were to approach those levels again, that would signal a good exit point.
Credit markets have already tightened, and risk premiums have risen.
Most commentators remain bullish on gold and silver into 2012, given a climate of negative real interest rates, high equity risk premiums and continued buying by emerging-market central banks.
The remaining yield on longer-term bonds is a risk premium that is commensurate with U.S. interest-rate volatility (Japanese risk premiums are lower, but they also have nearly zero interest-rate variability).
After all of the histrionics about a global financial melt-down, when you finally did what the President and his echoes in the media told you to do, risk premiums barely moved.
For example, a recent paper by Jim Hamilton and one of his students indicates that risk premiums in the crude oil futures market may have been driven down by the forces of financialization.
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Spreads, or risk premiums, on junk bonds in the U.S. have fallen to their lowest level in two years, while a fall in default rates in December marked the first monthly decline since October 2007.
However, Mr Crise suggests that it could be viewed in the same way as varying risk premiums on different countries' government bonds, meaning that it reflects uncertainty about the relative attractiveness of a country's equity markets.
And since the main macroeconomic factor which affects the comparative attractiveness of stocks and bonds is growth, equity risk premiums are largely a measure of how much risk investors think there is of poor economic growth in the future.
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Doing so is a way for a U.S. investor to ratchet down the risk of companies defaulting on their obligations without simultaneously assuming the risk of geopolitical shocks that might trigger a surge in risk premiums on emerging markets issues.
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