Long Run Impact of Macro News on Treasury Bond Yields

39 Pages Posted: 11 Nov 2019

See all articles by Bruno Feunou

Bruno Feunou

Bank of Canada

Jean-Sebastien Fontaine

Bank of Canada

Guillaume Roussellet

McGill University - Desautels Faculty of Management

Date Written: October 31, 2019

Abstract

Macro news have large impact on bond yields in high-frequency data. We aggregate the impact of macro news within each month, which we use in a no-arbitrage term structure models. We find that macro news explain 50 percent in the term premium of the 10-year bond at the monthly frequency and 40 percent at longer horizons. By contrast, macro news explain less than 10 percent of variations in the expectation component of the 10-year bond at monthly or longer horizons. The impact on the expectation component of yields is surprisingly low for all maturities and robust across a range of models, suggesting that investors mostly revise expectations based on information outside of data releases. Overall, macro new explains between 25 and 30 percent of yield variances at monthly or quarterly horizons, consistent with event studies, but this share declines to as low as 20 percent for longer horizons, for all maturities.

Keywords: Term Structure, Macro-Finance, Variance Decomposition

JEL Classification: C32, E43, G12

Suggested Citation

Feunou, Bruno and Fontaine, Jean-Sebastien and Roussellet, Guillaume, Long Run Impact of Macro News on Treasury Bond Yields (October 31, 2019). Available at SSRN: https://ssrn.com/abstract=3478738 or http://dx.doi.org/10.2139/ssrn.3478738

Bruno Feunou

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
613-782-8302 (Phone)

HOME PAGE: http://kamkui.net/

Jean-Sebastien Fontaine (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

HOME PAGE: http://www.jean-sebastienfontaine.com

Guillaume Roussellet

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
9
Abstract Views
96
PlumX Metrics