Interest Rate Volatility Dynamics

Very Easy Term Structure Dynamics Interest Rate Volatility

In the context of fixed income securities, the term structure of interest rates reflects the relationship between interest rates and different maturities of debt. One important aspect of interest rates is their volatility, which can significantly impact the pricing and risk of fixed income assets.

Given the following scenarios, identify the statement that is true concerning interest rate volatility.

Interest rate volatility tends to increase during periods of economic uncertainty.

Interest rate volatility is constant regardless of market conditions.

Interest rate volatility decreases as maturity increases.

Hint

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