Analysts have been able to say surprisingly little about the sources of the very
volatile yields of long-term U.S. bonds in recent decades. We used surveys of
economists' forecasts to decompose long-term bond yields into expectations of
future inflation, expected real short-term interest rates, and the expected bond
risk premium. Variation in the bond risk premium accounts for most of the
variation in yields from period to period, but declines in all three components
have contributed to the decline in yields of the past decade and a half.