Impact of Interest Rate Volatility on Bond Prices

Easy Term Structure Dynamics Interest Rate Volatility

In the context of bond markets, understanding the impact of interest rate volatility on price fluctuations is crucial for fixed income investors. Interest rate volatility refers to the degree of variation in interest rates over time. It can significantly influence the pricing and risk profiles of bonds. The term structure, reflecting the relationship between interest rates and various maturities, can shift as market conditions change, impacting bond yields.

Considering this information, which of the following statements about interest rate volatility is true?

Interest rate volatility predicts that bond prices will decrease as interest rates decrease.

Higher interest rate volatility generally leads to greater uncertainty in bond prices.

Interest rate volatility has no significant impact on the yield curve.

Hint

Submitted6.2K

Correct6.0K

% Correct96%