The Role of Economist Forecasts in Over-The-Counter Treasury Bond Markets
44 Pages Posted: 20 Nov 2019
Date Written: November 8, 2019
We examine the impact of economist forecasts on over-the-counter treasury bond trading and how participants with varied access to these forecasts respond. We find overnight interest rate forecasts are associated with increased treasury market trade volume and volatility, but not bond prices. Dealers at the forecasting economist’s institution sell but do not buy in response to forecasts that imply a fall and rise in bond price respectively. Dealers trade consistent with the forecasts of their own institution’s economists to reduce downside exposure but do not increase upside exposure in a uniform manner. Our results are consistent with expectations derived from theoretical models where agents heterogeneously interpret public information.
Keywords: Over-The-Counter markets, Market microstructure, Treasury Bond markets, Macroeconomic information, Research analyst forecasts
JEL Classification: E44, G12, G14, G21
Suggested Citation: Suggested Citation