How does a low rate of inflation affect the economy?

How does negative economic data and worries about inflation affect long term bond yields?

• Im asking this question in order to learn how to try and better predict were 30 year fixed interest rates are going on a day to day basis and also on the long term basis. I understand that they are most closely tied to long term bond yields, and that the yields move based on the outlook for the economy and inflation (I believe the 10 year is the strongest indicator for 30 year fixed rate but I might be wrong - please confirm this if you can) So what is the correlation? Does negative economic data/reports and the possibility of inflation increasing cause yields to fall or rise? Are there other factors that contribute? If so how much do those factors affect the long term yields? (Is it possible to estimate as a percentage which contributing factor has towards impacting long term bond yields?)

• Answer:

  Long term can change based on a large variety of factors. Short term rates can be the most predictable long term can not. Long term rates can change based on simple supply demand of more sellers than buyers prices drop and more buyers than sellers prices rise. The factors involved with that are nearly limitless. A hedge fund that needs to sell bonds to meet a marging call can drop prices. A massive overseas buyer from a country buying bonds can move prices up. A group of mutual funds dumps long term bonds to move into shorter term bonds can drop long term prices on bonds. As bond prices drop yields go up and as prices go up yields fall.