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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Low Frequency Effects of Macroeconomic News on Government Bond Yields
Carlo Altavilla
Domenico Giannone
Michele Modugno
Abstract

This study analyzes the reaction of the U.S. Treasury bond market to innovations in macroeconomic fundamentals. We identify these innovations with macroeconomic news, defined as differences between the actual releases and their market expectations. We show that macroeconomic news explain about one-third of the low frequency (quarterly) fluctuations of long-term bond yields. When focusing on the high frequency (daily) movements this share decreases to one-tenth. This result is due to the fact that macro news have a persistent effect on the yield curve. Non-fundamental factors, instead, substantially influence the day-to-day movements of bond yields but their effects are shorter-living and mean-reverting.


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Carlo Altavilla & Domenico Giannone & Michele Modugno, Low Frequency Effects of Macroeconomic News on Government Bond Yields, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2014-52, 23 Jun 2014.
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Keywords: Macroeconomic announcement; News; Treasury bond yield
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