Low frequency effects of macroeconomic news on government bond yields

•Macroeconomic surprises explain only a small fraction of the daily variation in bond yields.•Low frequency effects are derived from high-frequency market reactions.•The variance explained climbs when focusing on movements in yields at lower frequencies.•The result is mainly owing to persistent effe...

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Bibliographic Details
Published in:Journal of monetary economics 2017-12, Vol.92, p.31-46
Main Authors: Altavilla, Carlo, Giannone, Domenico, Modugno, Michele
Format: Article
Language:English
Subjects:
Macroeconomic announcement
News
Treasury bond yield
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Summary:•Macroeconomic surprises explain only a small fraction of the daily variation in bond yields.•Low frequency effects are derived from high-frequency market reactions.•The variance explained climbs when focusing on movements in yields at lower frequencies.•The result is mainly owing to persistent effects of macroeconomic news on bond yields. Are macroeconomic releases important drivers of Treasury bond yields? We develop a two-step regression strategy that fully exploits the available high-frequency market reaction data to identify the impact of macroeconomic releases and to quantify the effects at lower frequencies. While macroeconomic surprises explain only one tenth of the daily variation in bond yields, their explanatory power improves substantially at lower frequencies, accounting for one third of quarterly variations. The finding is explained by the persistent effects that macroeconomic surprises exert on bond yields, and a less persistent impact of residual factors, which tend to average out when focusing on longer-horizon changes.
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2017.08.004