Economic factors that affect yields:
- Short and intermediate term yields are driven mostly by inflation (up to 2/3)
- Long term yields are driven by monetary policies (up to 2/3)
Factors that affect yield volatility:
- Short term driven by uncertainty regarding monetary policies
- Long term driven by uncertainty regarding real economy an inflation
Can anyone help me to understand this? How come the volatile factor is not directly linked to the economic factor that drive the changes? If, for example, short term is mostly driven by inflation, how come that uncertainty about inflation does not make it more volatile?
Thanks