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Low Frequency Effects of Macroeconomic News on Government Bond Yields

Listed author(s):
  • Carlo Altavilla
  • Domenico Giannone
  • Michèle Modugno

We analyze the reaction of the U.S. Treasury bond market to innovations in macroe-economic fundamentals. We identify these innovations based on macroeconomic news, which are defined as differences between the actual releases and market expectations. We find that that macroeconomic news explain about one-third of the low frequency (quarterly) fluctuations in long-term bond yields. When we focus on the high frequency (daily) movements, this decrease to one-tenth. This is because macroeconomic news have a persistent effect on bond yields, whereas non-fundamental factors have substantial effects on the day-to-day movements of bond yields, although their effects are shorter lived.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/174573/1/2014-34-ALTAVILLA_GIANNONE_MODUGNO-low.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2014-34.

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Length: 36 p.
Date of creation: Aug 2014
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/174573
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  1. Laura Coroneo & Domenico Giannone & Michèle Modugno, 2013. "Unspanned Macroeconomic Factors in the Yields Curve," Working Papers ECARES ECARES 2013-07, ULB -- Universite Libre de Bruxelles.
  2. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  3. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
  4. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
  5. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
  6. Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May.
  7. Monika Piazzesi, 2002. "The Fed and Interest Rates - A High-Frequency Identification," American Economic Review, American Economic Association, vol. 92(2), pages 90-95, May.
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