Bond yields are significantly affected by monetary policy. Monetary policy at its core is about determining interest rates. In turn, interest rates define the risk-free rate of return. The risk-free rate of return has a large impact on the demand for all types of financial securities, including bonds.
When interest rates are low, bond yields decline as there is increased demand for bonds. For example, if the yield on a bond is 5%, this yield becomes more attractive as the risk-free rate of return falls from 3 to 1%. This increased demand for bond results in the price of bonds rising and its yield falling.
Of course, the inverse is true as well. When the risk-free rate of return rises, money moves from financial assets to the safety of guaranteed returns. For example, if the risk-free rate of return rises from 2 to 4%, a bond yielding 5% would become less attractive. The extra yield would not be worth taking on the risk. Demand for the bond would decline, and the yield would rise until supply and demand reached a new equilibrium.
Central banks are aware of their ability to influence asset prices via monetary policy. They use this power to moderate swings in the economy. During recessions, they look to stave off deflationary forces by lowering interest rates, leading to increases in asset prices. Increasing asset prices have a mildly stimulating effect on the economy. When bond yields fall, it results in lower borrowing costs for corporations and the government, leading to increased spending. Mortgage rates decline, so demand for housing increases as well.