Over 1990-2017, we identify lengthy segments of the economic cycle that exhibit a much stronger negative relation between uncertainty changes and Treasury yields, and an elevated equity variance premium. These segments fit as Bekaert-Engstrom-style (2017) bad environments; regarding their timing within the economic cycle and their relation to forecasted GDP declines, macroeconomic uncertainty, consumer sentiment, equity bear markets, the targeted Fed Funds rate, and the behavior of credit yield spreads. Our findings suggest that the influence of precautionary savings on interest rates is elevated during bad-environment economic times, with interest rates responding much more negatively to time-varying perceptions of uncertainty.

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