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What Moves Yields in Australia?

Author

Listed:
  • Frank Campbell

    (Reserve Bank of Australia)

  • Eleanor Lewis

    (Reserve Bank of Australia)

Abstract

In this paper, we measure how the fixed-interest market in Australia assesses and responds to new economic information. We use high-frequency data, precise announcement times and market-based forecasts to measure the reaction of bill and bond yields to news. The period covered is from January 1994 to September 1997. We find that announcements about US economic news have had a large impact on yields in Australia – especially bond yields. Of the domestic announcements, the market responds to: monetary policy announcements, the CPI, the labour force and AWOTE, as well as a range of other economic statistics. We also find that the fixed-interest market seems to distinguish between the information contained in different economic announcements and that traders systematically respond to the size and direction of any unanticipated component of these announcements. The results suggest that the market perceives that information on prices, employment and wages is more important in the Reserve Bank’s decisions about monetary policy than are other indicators of economic activity. Taken in sum, the results also suggest some consistency of response to news in the fixed-interest market in Australia.

Suggested Citation

  • Frank Campbell & Eleanor Lewis, 1998. "What Moves Yields in Australia?," RBA Research Discussion Papers rdp9808, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9808
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    File URL: https://www.rba.gov.au/publications/rdp/1998/pdf/rdp9808.pdf
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    References listed on IDEAS

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    1. Gordon de Brouwer & Luci Ellis, 1998. "Forward-looking Behaviour and Credibility: Some Evidence and Implications for Policy," RBA Research Discussion Papers rdp9803, Reserve Bank of Australia.
    2. Hardouvelis, Gikas A., 1988. "Economic news, exchange rates and interest rates," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 23-35, March.
    3. Edison, Hali J, 1997. "The Reaction of Exchange Rates and Interest Rates to News Releases," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 87-100, April.
    4. Ric Battellino & John Broadbent & Philip Lowe, 1997. "The Implementation of Monetary Policy in Australia," RBA Research Discussion Papers rdp9703, Reserve Bank of Australia.
    5. Tro Kortian & James O’Regan, 1996. "Australian Financial Market Volatility: An Exploration of Cross-country and Cross-market Linkages," RBA Research Discussion Papers rdp9609, Reserve Bank of Australia.
    6. Urich, Thomas & Wachtel, Paul, 1981. "Market Response to the Weekly Money Supply Announcements in the 1970s," Journal of Finance, American Finance Association, vol. 36(5), pages 1063-1072, December.
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    Citations

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    Cited by:

    1. Ric Battellino & Michael Plumb, 2011. "A generation of an internationalised Australian dollar," BIS Papers chapters, in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 202-217, Bank for International Settlements.
    2. Gasbarro, Dominic & Monroe, Gary S., 2004. "The impact of monetary policy candidness on Australian financial markets," Journal of Multinational Financial Management, Elsevier, vol. 14(1), pages 35-46, February.
    3. Harry M. Karamujic, 2011. "Comparative Analysis of Australian Residential Mortgage (Home Loan) Interest Rates," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 5(3), pages 311-341, August.
    4. Jones, Brad & Lin, Chien-Ting & Masih, A. Mansur M., 2005. "Macroeconomic announcements, volatility, and interrelationships: An examination of the UK interest rate and equity markets," International Review of Financial Analysis, Elsevier, vol. 14(3), pages 356-375.
    5. Zettelmeyer, Jeromin, 2004. "The impact of monetary policy on the exchange rate: evidence from three small open economies," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 635-652, April.
    6. Fabio Fornari, 2004. "Macroeconomic announcements and implied volatilities in swaption markets," BIS Quarterly Review, Bank for International Settlements, September.
    7. Luci Ellis & Eleanor Lewis, 2001. "The Response of Financial Markets in Australia and New Zealand to News about the Asian Crisis," RBA Research Discussion Papers rdp2001-03, Reserve Bank of Australia.
    8. Ellis Connolly & Marion Kohler, 2004. "News and Interest Rate Expectations: A Study of Six Central Banks," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Simon Guttmann (ed.),The Future of Inflation Targeting, Reserve Bank of Australia.
    9. Jonathan Coppel & Ellis Connolly, 2003. "What Do Financial Market Data Tell Us about Monetary Policy Transparency?," RBA Research Discussion Papers rdp2003-05, Reserve Bank of Australia.
    10. Frijns, Bart & Indriawan, Ivan & Tourani-Rad, Alireza, 2015. "Macroeconomic news announcements and price discovery: Evidence from Canadian–U.S. cross-listed firms," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 35-48.
    11. Roman Matousek, 2001. "Transparency and Credibility of Monetary Policy in Transition Countries: The Case of the Czech Republic," Archive of Monetary Policy Division Working Papers 2001/37, Czech National Bank.
    12. Kulish, Mariano & Rees, Daniel, 2011. "The yield curve in a small open economy," Journal of International Economics, Elsevier, vol. 85(2), pages 268-279.
    13. Rogers, J. M. & Siklos, P. L., 2003. "Foreign exchange market intervention in two small open economies: the Canadian and Australian experience," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 393-416, June.
    14. Kathleen Walsh & David Tan, 2008. "Monetary Policy Surprises and the Bank Bill Term Premium," Australian Journal of Management, Australian School of Business, vol. 33(2), pages 231-260, December.
    15. Toni Gravelle & Richhild Moessner, 2001. "Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency," Staff Working Papers 01-5, Bank of Canada.

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    More about this item

    Keywords

    news; economic announcements; financial markets; interest rates;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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