Low Frequency Effects of Macroeconomic News on Government Bond Yields

37 Pages Posted: 10 Aug 2014

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Michele Modugno

Board of Governors of the Federal Reserve System

Date Written: June 3, 2014

Abstract

In this study, we analyze the reaction of the U.S. Treasury bond market to innovations in macroeconomic 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.

Keywords: Macroeconomic announcements, treasury bond yields

JEL Classification: E43, E44, E47, G14

Suggested Citation

Altavilla, Carlo and Giannone, Domenico and Modugno, Michele, Low Frequency Effects of Macroeconomic News on Government Bond Yields (June 3, 2014). FEDS Working Paper No. 2014-52. Available at SSRN: https://ssrn.com/abstract=2477522 or http://dx.doi.org/10.2139/ssrn.2477522

Carlo Altavilla

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michele Modugno (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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