This study proposes two rational models to reconcile the enigma regarding the inconsistent bond pricing that results … among bonds with the same ratings. First, we apply a nonlinear utility function to the expected utility theory and observe … different expected utilities for senior bonds and subordinated bonds with the same bond rating. Second, we implement the …

observed government bond yields and survey-based expected average short rates. Our term premiums measured directly based on … rates, and uncover a number of important facts: 1) the bulk of the variation in medium- and long-term bond yields is driven … shocks playing the most prominent role; and 5) the secular decline of U.S. long-term bond yields over the past thirty years …

explaining the bond premium. This feature can be viewed as an alternative to other features needed to generate a sizable term …