True or False: Yields on short term bonds are more volatile than yields on long term bonds.

Yields on short-term bonds are indeed more volatile than yields on long-term bonds due to several factors related to interest rate fluctuations and market dynamics. Short-term bonds are more sensitive to changes in monetary policy and immediate economic conditions. When central banks, such as the Federal Reserve, adjust interest rates, short-term rates react more quickly since they are influenced by current economic indicators.

Furthermore, short-term bonds typically have less time to maturity, meaning that any shift in interest rates can have a larger percentage impact on their prices. This responsiveness leads to greater yield volatility in the short end of the yield curve. In contrast, long-term bonds, with their extended maturity periods, tend to be influenced by long-term economic expectations and are less affected by short-term market shocks, which can stabilize their yields.

Therefore, the statement that yields on short-term bonds are more volatile than those on long-term bonds is correct.