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

Published online by Cambridge University Press:  06 April 2009

Pierluigi Balduzzi ,
Edwin J. Elton  and
T. Clifton Green
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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
Information
Journal of Financial and Quantitative Analysis , Volume 36 , Issue 4 , December 2001 , pp. 523 - 543
Copyright
Copyright © School of Business Administration, University of Washington 2001

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