Long yields are not just an average of expected future short rates. They also embed a term premium — the extra compensation investors demand for holding duration risk. The decomposition is roughly:

Long yield ≈ average expected short rate + term premium

This matters because the same yield curve shape can mean very different things depending on which component is moving. A steep curve driven by rising term premium signals fiscal or inflation risk; a steep curve driven by falling expected short rates signals an easing cycle ahead.

Expectations hypothesis: forward rates are unbiased predictors of future spot rates
Liquidity preference: investors demand a premium to hold longer maturities
Preferred habitat: supply/demand imbalances at specific maturities distort the curve
ACM and Kim-Wright models estimate term premium from the data

Era	10Y Yield	Est. Term Premium	Signal
2019	2.10%	−0.30%	QE-suppressed premium
2021	1.50%	−0.50%	Deeply negative
2023	4.80%	+0.40%	Fiscal/inflation risk