Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information

21 Pages Posted: 9 Mar 1999

See all articles by Michael J. Fleming

Michael J. Fleming

Federal Reserve Bank of New York

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department

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Abstract

The arrival of public information in the U.S. Treasury market sets off a two-stage adjustment process for prices, trading volume, and bid-ask spreads. In a brief first stage, the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume, demonstrating that price reactions to public information do not require trading. The bid-ask spread widens dramatically at announcement, evidently driven by inventory control concerns. In a prolonged second stage, trading volume surges, price volatility persists, and bid-ask spreads remain moderately wide as investors trade to reconcile residual differences in their private views.

JEL Classification: G14

Suggested Citation

Fleming, Michael J. and Remolona, Eli M., Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information. Available at SSRN: https://ssrn.com/abstract=152708 or http://dx.doi.org/10.2139/ssrn.152708

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

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HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

IFC 2 Bldg, 78/F
Central
Hong Kong
Hong Kong
+852 2982 7150 (Phone)
+852 2982 7123 (Fax)

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