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The term structure of announcement effects

Listed author(s):
  • Michael J. Fleming
  • Eli M. Remolona

We analyze high-frequency responses of U.S. Treasury yields across the maturity spectrum to macroeconomic announcements. We find that surprises in the announcements evoke the sharpest reactions from the intermediate maturities, thus forming striking hump-shaped curves of announcement effects. We then fit an affine-yield model to the yield changes using the announcement surprises as GMM instruments. The model estimates imply that the announcements elicit larger shocks to an expected future target interest rate than to the current short-term interest rate and that different types of announcements generate different expectations about this target rate, how rapidly it will be approached, and how long it will be maintained.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 76.

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Date of creation: 1999
Handle: RePEc:fip:fednsr:76
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  6. V. Vance Roley & Carl E. Walsh, 1985. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 1011-1039.
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  11. 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.
  12. Duffie, Darrell & Singleton, Kenneth J, 1997. " An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, vol. 52(4), pages 1287-1321, September.
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  15. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-1191, September.
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  17. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
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  21. Cook, Timothy & Hahn, Thomas, 1987. "The Reaction of Interest Rates to Unanticipated Federal Reserve Actions and Statements: Implications for the Money Announcement Controversy," Economic Inquiry, Western Economic Association International, vol. 25(3), pages 511-534, July.
  22. Michael J. Fleming, 1997. "The round-the-clock market for U.S. Treasury securities," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-32.
  23. Cornell, Bradford, 1983. "Money Supply Announcements and Interest Rates: Another View," The Journal of Business, University of Chicago Press, vol. 56(1), pages 1-23, January.
  24. Amin, Kaushik I. & Morton, Andrew J., 1994. "Implied volatility functions in arbitrage-free term structure models," Journal of Financial Economics, Elsevier, vol. 35(2), pages 141-180, April.
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  28. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
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