Interest Rate Volatility in Fixed Income

Medium Term Structure Dynamics Interest Rate Volatility

Investors often analyze the dynamics of interest rate volatility when evaluating fixed income securities. In the context of assessing a bond's sensitivity to interest rate changes, which of the following statements about interest rate volatility is accurate?

Consider the following scenario in which the yield curve experiences a significant upward shift. How does this relate to the concept of interest rate volatility and its impact on bond pricing?

Higher interest rate volatility typically decreases the prices of all fixed income securities.

An upward shift in the yield curve indicates that interest rates are expected to remain stable.

Increasements in interest rate volatility can lead to greater convexity effects for long-duration bonds.

Hint

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