1. The bond risk premium is defined as a bond’s expected (near-term) holding-period return in excess of the riskless short rate. Historical experience suggests that long-term bonds command some risk premium because of their greater perceived riskiness. However, our term bond risk premium also covers required return differentials across bonds that are caused by other reasons than risk, such as liquidity differences, supply effects, or the market sentiment.

2. A concave (but upward-sloping) curve has a steeper slope at short maturities than at long maturities; thus a line connecting two points on the curve is always below the curve. A convex (but upward-sloping) curve has a steeper slope at long maturities than at short maturities; thus a line connecting two points on the curve is always above the curve.