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Information shares in the U.S. treasury market

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  • Bruce Mizrach
  • Christopher J. Neely

Abstract

This paper is the first to characterize the tatonnement of high-frequency returns from U.S. Treasury spot and futures markets. In particular, we highlight the previously neglected role of the futures markets in price discovery. The lower-bound estimate of bivariate information shares for 30-year Treasury futures typically exceeds 50% from 1998 on. Standard liquidity measures, including the proportion of trades and relative bid-ask spreads, explain daily information shares. These conclusions still hold when one controls for days of macroeconomic announcements. Finally, a 5-dimensional cointegrated system explains a high percentage of Treasury returns. In that system, the 30-year futures contract and the 5-year spot market dominate price discovery. ; Earlier title: The microstructure of bond market tatonnement; Price discovery in the U.S. treasury market

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2005-070.

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Date of creation: 2007
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Publication status: Published in Journal of Banking and Finance, July 2008, 32(7), pp. 1221-33
Handle: RePEc:fip:fedlwp:2005-070

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Keywords: Bond market;

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