Hostname: page-component-78c5997874-8bhkd Total loading time: 0 Render date: 2024-11-07T02:08:12.631Z Has data issue: false hasContentIssue false

Economic News and Bond Prices: Evidence from the U.S. Treasury Market

Published online by Cambridge University Press:  06 April 2009

Abstract

This Paper uses intraday data from the interdealer government bond market to investigate the effects of scheduled macroeconomic announcements on prices, trading volume, and bid-ask spreads. We find that 17 public news releases, as measured by the surprise in the announcced quantity, have a significant impact on the price of the following instruments: a three-month bill, a two-year note, a 10-year, anda 30-year bond. These effects vary significantly according to maturity. Public news can explain a substantial fraction of price volantility in the after math of announcements, and the adjustment to news generally occurs within one minute after the announcement. We document significant and persistent increases in volatility and trading volume after the announcements. Bidask spreads, on the other hand, widen at the timeof the announcements, but then revert to normal values after five to 15 minutes. The implications for yield curve modeling and for the microstructure of bond markets.

Type
Research Article
Copyright
Copyright © School of Business Administration, University of Washington 2001

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Almeida, A.; Goodhart, C.; and Payne, R.. “The Effects of Macroeconomic News on High-Frequency Exchange Rate Behavior.” Journal of Financial and Quantitative Analysis, 33 (1998), 383408.CrossRefGoogle Scholar
Beaver, W. H.The Information content of Annual Earings Announcements.” In Empirical Research in Accounting: Selected Studeies, 6 (1968), 6792.CrossRefGoogle Scholar
T., Boolerslev; Cai, J.; and Song, F. M.. “Intraday Periodicity, Long Memory Volatility, and Macro Announcements in the U.S. Treasury Bond Market.” Mimeo, CityUniv. of Hong Kong (1999).Google Scholar
Copeland, T. E., and Galai, D.. “Information Effects of the Bid-Ask Spread.” Journal of Finance, 38 (1983), 14571469.Google Scholar
Das, S.The Surprise Element: Jumps in Interest Rate Diffusions.” MimeoHarvard Univ. (1999).Google Scholar
Das, S. and Foresi, S.. “Exact Solutions for Bond and Option Prices with Systematic Jump Risk.” Review of Derivatives Research, 1 (1996), 724.CrossRefGoogle Scholar
Ederigton, L. H., and Lee, J. H.. “How Markets Process Information: News Releases and Volatility.” Journal of Finance,48 (1993), 11611191.CrossRefGoogle Scholar
Edison, H. J.The Reaction of Exchange Rates and Interest Rates to News Releases”. International Finance Discussion Paper No. 570, Board of Governors of the Federal Reserve System (1996).Google Scholar
Elton, E. J. and Green, T. C.. “Tax and Liquidity Effects in Pricing Government Bonds.” Journal of Finance, 53 (1998), 15331562.CrossRefGoogle Scholar
Federnal Reserve Bulletin. Board of Governors of the Federal Reserve, Washington D.C. (09, 1993).Google Scholar
Fleming, M. J.The Round-the-Clock Market for U.S. Treasury Securities”. Federal Reserve Bank of New York Economic Policy Review (02,1997), 3150.Google Scholar
Fleming, M. J., and Remolona, E. M.. “Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information”. Journal of Finance, 54 (1999), 19011915.CrossRefGoogle Scholar
Glosten, L. R.Components of the Bid-Ask Spread and the statistical Properties of Transaction Prices”. Journal of Business, 42 (1987), 12931307.Google Scholar
Glosten, L. R., and Milgrom, P. R.. “Bid, Ask, and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders”. Journal of Financial Economics, 14 (1985), 71100.CrossRefGoogle Scholar
Hakkio, C. S., and Pearce, D. K.. “The Reaction of Exchange Rates to Economic News”. Economic Inquiry, 23 (1985), 621639.CrossRefGoogle Scholar
Hardouvelis, G. A.Optimal Dealer Pricing under Transactions and Return Uncertainty”. Journal of Financial Economics, 9(1981), 4773.Google Scholar
Ho, T., and Stoll, H. R.. “Economic News, Exchange Rates and Interest Rates”. Journal of International Money and Finance, 7 (1988), 2335.Google Scholar
Ito, T., and Roley, V. V.. “News from the U.S. and Japan: Which Moves the Yen/Dollar Exchange Rate?Journal of Monetary Economics, 19 (1987), 255277.CrossRefGoogle Scholar
King, R. G., and Watson, M.. “The Post–War U.S. Phillips Curve: A Revisionist Econometric History”. Carnegie–Rochester Conference Series on Public Policy, 41 (1994), 157219.CrossRefGoogle Scholar
King, R. G., and Wastson, M.. “Money, Prices, Interest Rates, and the Business Cycle”. Review of Economics and Statistics, 78 (1996), 3553.CrossRefGoogle Scholar
McQueen, G., and Roley, V. V.. “Stock Prices, News, and Business Conditions”. Review of Financial Studeis, 6 (1993), 683707.CrossRefGoogle Scholar
Pearce, D. K., and Roley, V. V.. “Stock prices and Economic News”. Journal of Business, 58 (1985), 4967.CrossRefGoogle Scholar
Urich, T., and Wachtel, P.. “The Effects of Inflation and Money Supply Announcements on Interest Rates”. Journal of Finance, 39 (1984), 11771188.CrossRefGoogle Scholar