Explanation

Long-term interest rates are typically less volatile than short-term rates.

Reasons for lower volatility in long-term rates:

1. Duration effect: Long-term bonds have higher duration, making their prices more sensitive to interest rate changes, but this doesn't necessarily mean the rates themselves are more volatile

2. Expectations theory: Long-term rates reflect expectations of future short-term rates, which tend to smooth out volatility

3. Central bank influence: Central banks primarily influence short-term rates through monetary policy, causing more volatility at the short end

4. Market structure: Short-term rates are more influenced by immediate liquidity conditions and policy changes

Empirical evidence:

• Short-term rates (e.g., overnight rates, 3-month T-bills) show higher day-to-day volatility
• Long-term rates (e.g., 10-year bonds) tend to move more gradually and show less frequent large swings

This relationship is consistent with the term structure of volatility, where volatility generally decreases with maturity.