Furthermore, the policy response to the Fed was not limited to a near-zero Fed funds target: sizeable purchases of government and agency debt by the central bank, together with “forward guidance” regarding the future path of interest rates, were implemented with the stated aim of lowering interest rates across the whole yield curve. These unconventional policy tools were also not limited to the US.
This means that we need to understand – as much as you do – what drives changes in these curves, so we can draw correct inferences regarding the appropriateness of our monetary policy stance. This has become all the more important in an environment where central banks no longer only control very short-term policy rates but also influence long-term yields through asset purchases.