Economic News and the Yield Curve: Evidence from the U.S. Treasury Market

Abstract

This paper examines newly-available intraday data from the interdealer government bond market to investigate the effects of economic-news announcements on prices, volume, and bid-ask spreads. By using expectational data we are able to separate out the impact of concurrent announcements. The use of intraday price data together with data on market expectations allows us to obtain new and different results relative to previous studies. We find several economic announcements to have a significant impact on two, ten, and thirty-year bond prices. For announcements that have a significant impact on bond prices, the impact occurs within one minute after the announcement. The three-month T-Bill price, on the other hand, is not impacted by the major economic announcement releases. This suggests that at least two factors of uncertainty are needed to model bond prices. For the two, ten, and thirty-year bonds we find a strong association between announcements and volume. Macroeconomic announcements do not have as much of an effect on trading volume for the three-month Treasury bill, although changes in monetary policy lead to an average trading volume up to nine times higher than at non-announcement times. Immediately after most economic announcements, bid-asl spreads widen significantly, while they tighten in the next five to fifteen minutes