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At the quarterly frequency from 1968 through 2012, shocks to expected average inflation over a bond’s life account for between 10 to 15 percent of shocks to nominal Treasury yields. Shocks to real rates and term premia account for the remainder. Evidence from 1999 through 2012, when TIPS are available, suggest there is little difference between nominal and real term premia. Therefore nominal yield shocks are almost entirely real yield shocks. Efforts to link yield shocks to economic activity shocks or inflation shocks are not particularly successful.

I analyze credit rating agencies and competition on a market with more than two agencies. Both investors and agencies react to each other’s behavior. My model predicts cyclic dynamics in the base case: not only does the presence of trusting investors facilitate ratings inflation. In turn, ratings inflation also induces investors to be less trusting. If trusting investors have a high impact on agencies’ reputation, the dynamics exhibits a saddle point rather than cycles. This is one case in which regulatory support for new, honest rating agencies is only needed for a limited time,but the effect is sustainable in the long run.