Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve

Rodney L. White Center for Financial Research Working Paper No. 14-02

38 Pages Posted: 2 Dec 2002  

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Kenneth A. Kavajecz

Syracuse University - Whitman School; University of Wisconsin, Madison - Department of Finance, Investment and Banking

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

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

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

Michael W. Brandt (Contact Author)

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kenneth A. Kavajecz

Syracuse University - Whitman School ( email )

900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States

University of Wisconsin, Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States

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