Short-Term YTM vs Long Term YTM on equity risk premium long, actually, increase, someone, equity

disiz64

Hi guys,
can someone explain to me WHY switching from long -term YTM to short term YTM would actually increase the size of the risk premium?
Thanks

siavosh

This is only true when we have normal yield curve. It’s the other way round when they say that the yield curve is inverted.

nitoha

Ah i was thinking in the context of a build-up Model where you just tag a 3-5% premium onto the YTM of a debt instrument

tarunajwani

Risk Premium = Market Return - Risk Free Rate
Shorter term treasuries have lower YTM (almost always). So using these will increase the risk premium.

EastCoastJ

cuz you have no long term financing? that means can’t make payments ie. equity can go down more hence risk is up.