Macroeconomic News and Treasury Futures Return Volatility: Do Treasury Auctions Matter?

Abstract

Various macroeconomic announcements are known to influence asset price volatility. While contemplating the impact of a variety of macro news surprises, we highlight the importance of Treasury auctions – a news event that has ramifications for interest rates across the economy and which are gaining in importance due to ongoing Federal deficits, yet has received little attention to date. Using daily observations for the period 2000 – 2017, we demonstrate that Treasury auctions have a statistically significant impact on the Treasury futures market. The occurrence of an auction, which increases supply in the underlying cash market, pushes futures prices lower and volatility higher. Conversely, a higher bid-to-cover ratio, which indicates greater demand for Treasury securities, is associated with increases in the price of Treasury futures. The response is consistent with market participants using futures to manage inventory risk. We identify eight macroeconomic news surprises (Cons_Conf, GDP, Ind_Prod, Init_Jobs, ISM_Manu, ISM_NonM, NFP, Ret_Sales) encapsulating economic output, consumer spending, and employment data as having a significant volatility impact on Treasury futures, and highlight the importance of non farm payrolls. The results are consistent across a set of volatility estimates, and in an alternate conditional volatility framework.

Keywords: Macroeconomic News, Treasury Auctions, Futures Markets, Volatility, Market Efficiency

JEL Classification: G10, G12, G14