Pre-Refunding Announcement Gains in U.S. Treasurys

66 Pages Posted: 12 Apr 2024 Last revised: 29 Apr 2024

See all articles by Chen Wang

Chen Wang

University of Notre Dame - Mendoza College of Business

Kevin Zhao

Office of Financial Research, US Department of the Treasury

Date Written: March 18, 2024

Abstract

Each quarter, the Treasury Department unveils its refunding plan, detailing the following quarter's treasury issuances in terms of size and maturity composition. We document substantial positive returns on long-term Treasurys on the day before these Treasury Refunding Announcements (TRAs), a pattern persisting since the 1990s and intensifying over the last two decades amidst growing Federal deficits. These pre-TRA gains are distinct from known end-of-month pricing patterns and account for a sizable fraction of annual yield and term premium changes. Implementing a trading strategy focused solely on these four days per year yields a Sharpe ratio of over 4. We provide evidence of uncertainty reduction and associated information production around TRAs as a potential mechanism. Finally, we discuss implications for some documented bond market patterns and the pre-FOMC drift in the equities market.

Keywords: Treasury market; Treasury Refunding Announcement; Bond returns

JEL Classification: G12, E43

Suggested Citation

Wang, Chen and Zhao, Kevin, Pre-Refunding Announcement Gains in U.S. Treasurys (March 18, 2024). Available at SSRN: https://ssrn.com/abstract=4764295 or http://dx.doi.org/10.2139/ssrn.4764295

Chen Wang (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

HOME PAGE: http://chenwang.one/

Kevin Zhao

Office of Financial Research, US Department of the Treasury ( email )

717 14th Street, NW
Washington, DC 20220
United States

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