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Low Frequency Effects of Macroeconomic News on Government Bond Yields

Author

Listed:
  • Carlo Altavilla

    (European Central Bank and CSEF)

  • Domenico Giannone

    (LUISS University of Rome, ECARES, EIEF and CEPR)

  • Michele Modugno

    (Federal Reserve Board)

Abstract

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.

Suggested Citation

  • Carlo Altavilla & Domenico Giannone & Michele Modugno, 2014. "Low Frequency Effects of Macroeconomic News on Government Bond Yields," CSEF Working Papers 372, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:372
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    More about this item

    Keywords

    macroeconomic announcement; news; treasury bond yield;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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