Rodney L. White Center for Financial Research Working Paper No. 14-02
38 Pages Posted: 2 Dec 2002
Date Written: September 2002
We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) can account for as much as 26 percent of the day-to-day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity is low. All of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve.
Suggested Citation: Suggested Citation
Brandt, Michael W. and Kavajecz, Kenneth A., Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve (September 2002). Rodney L. White Center for Financial Research Working Paper No. 14-02. Available at SSRN: https://ssrn.com/abstract=336620 or http://dx.doi.org/10.2139/ssrn.336620