Long Run Impact of Macro News on Treasury Bond Yields

56 Pages Posted: 11 Nov 2019 Last revised: 27 Jan 2021

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

Does the macroeconomic information in data releases shape bond yields in the long-term? We offer evidence that the new information embedded in high-frequency bond price changes around the release of economic data explains at most 40% of yields fluctuations at longer horizons, and as low as 20% in the long run. From the perspective of a theoretical model in which investors learn from the releases about the path of future short rates, our empirical findings suggest that investors’ expectations about future monetary policy actions are updated largely based on information revealed outside of the releases. Our results cast doubts on a transparent monetary policy response function linking macroeconomic surprises to the path of interest rates.

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

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