There are several reasons for this: they provide information to market participants and policymakers concerning the state of the economy and how it is expected to develop; they signal monetary policy expectations and investors’ expectations regarding future inflation; they offer benchmarks for pricing other assets.
In times of unconventional monetary policy, fixed income markets acquire an extra dimension: they become key channels through which the central bank seeks to influence long-term interest rates directly – through expanded guidance about its intentions for future policy, or through purchases of long-dated securities – in an attempt to ease financial conditions beyond what would be feasible with conventional tools, and thereby support economic activity and the central bank’s inflation objective.