Hello guys can someone explain me “Expected increases in GDP volatility would put upward pressure on short-term TIPS rates, all else being held equal”.Volatility here refers to income available to be less or more?
It’s not really an income thing. It actually deals with the uncertainty around GDP growth and inflation - i.e. the “theta” premium that investors command for uncertainty around inflation. Thus if volatility in gdp growth/inflation expectations go up so will the theta premium - thus putting pressure on ST rates.
correct.
Thank you bfry!!