Impact of Interest Rate Volatility on Yield Curve

In the context of fixed income securities, interest rate volatility refers to the unpredictability of interest rates over time, which has significant implications for bond prices and yields. Specifically, a rise in interest rates generally leads to a decrease in the price of bonds, while a fall in interest rates can increase bond prices. Understanding how interest rate volatility affects the term structure of interest rates can help investors make better decisions regarding their fixed income investments.

Consider the influence of macroeconomic factors such as inflation expectations, economic growth, and Federal Reserve policies on interest rate volatility. Which of the following statements accurately describes the impact of higher interest rate volatility on the term structure of interest rates?