The Impact of Macroeconomic News on Bond Yields: (In)Stabilities over Time and Relative Importance

We study the daily response of T-Bond yields to the news in a large set of macroeconomic releases over the sample running from January 1997 to September 2010. The full-sample results show that the yields react systematically to a set of news consisting of the soft data, which have very short publication lags, and the most timely hard data, with the employment report being the most important release. Further looking at sub-samples over the pre-Great Recession period reveals that parameter instability in terms of absolute and relative size of yields response to news, as well as significance, is present. The often cited dominance to markets of the employment report has been evolving over time, as the size of the yields reaction to it was steadily increasing. Over the most recent crisis period, however, there has been an overall switch in the relative importance of soft and hard data compared to the pre-crisis period, with the later becoming more important even if less timely. Moreover, the scope of hard data to which markets react to has increased and is more balanced in terms of size of the response, hence less concentrated on the employment report.