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Author:Remolona, Eli M. 

What moves the bond market?

We take a close look at a year in the U.S. Treasury market and try to explain the sharpest price changes and most active trading episodes. The virtue of our analysis lies in its use of high-frequency data on market movements and accurate release times for a comprehensive set of economic announcements. For the period August 1993 to August 1994, we attribute the 25 largest price moves and 25 greatest trading surges to just-released announcements. The bond market's response to announcements in general is consistent with the way we would expect it to react to new information.
Research Paper , Paper 9706

Price formation and liquidity in the U.S. treasuries market: evidence from intraday patterns around announcements

We find striking intraday adjustment patterns for price volatility, trading volume, and bid-ask spreads in the U.S. Treasuries market around the time of macroeconomic announcements. The patterns suggest certain hypotheses about price formation and liquidity provision in multiple-dealer markets. These hypotheses assign new importance to public information, heterogeneous views, sluggish price discovery, traditional inventory-control behavior by market makers, and liquidity traders who react with a lag to price changes.
Research Paper , Paper 9633

Journal Article
Market returns and mutual fund flows

With the increased popularity of mutual funds come increased concerns. Namely, could a sharp drop in stock and bond prices set off a cascade of redemptions by mutual fund investors and could the redemptions exert further downward pressure on asset markets? The authors analyze this relationship by using instrumental variables--a measuring technique previously unapplied to market returns and mutual fund flows--to determine the effect of returns on flows. Despite market observers' fears of a downward spiral in asset prices, the authors conclude that the short-term effect of market returns on ...
Economic Policy Review , Volume 3 , Issue Jul , Pages 33-52

Journal Article
Finance companies, bank competition, and niche markets

During the 1980s, U.S. commercial banks faced increased competition in their lending activity from large finance companies. This article analyzes the differential performance of banks and finance companies in various segments of the consumer and business credit markets. In particular, it explores why banks were seemingly slow to take advantage of opportunities in fast-growing finance company niche markets.
Quarterly Review , Volume 17 , Issue Sum

The term structure of announcement effects

We analyze high-frequency responses of U.S. Treasury yields across the maturity spectrum to macroeconomic announcements. We find that surprises in the announcements evoke the sharpest reactions from the intermediate maturities, thus forming striking hump-shaped curves of announcement effects. We then fit an affine-yield model to the yield changes using the announcement surprises as GMM instruments. The model estimates imply that the announcements elicit larger shocks to an expected future target interest rate than to the current short-term interest rate and that different types of ...
Staff Reports , Paper 76

A three-factor econometric model of the U.S. term structure

We estimate and test a model of the U.S. term structure that fits both the time series of interest rates and the cross-sectional shapes of the yield and volatility curves. In the model, three unobserved factors drive a stochastic discount process that prices assets so as to rule out arbitrage opportunities. The resulting bond yields are conveniently affine in the factors. We use monthly zero-coupon yield data from January 1986 to March 1996 and estimate the model by applying a Kalman filter that takes into account the model's no-arbitrage restrictions and using only three maturities at a ...
Research Paper , Paper 9619

Risk, capital markets, and the large public enterprise

Research Paper , Paper 8912

Journal Article
The pricing and hedging of market index deposits

Quarterly Review , Volume 12 , Issue Sum

Journal Article
Risk management by structured derivative product companies

In the early 1990s, some U.S. securities firms and foreign banks began creating subsidiary vehicles--known as structured derivative product companies (DPCs)--whose special risk management approaches enabled them to obtain triple-A credit ratings with the least amount of capital. At first, market observers expected credit-sensitive customers to turn increasingly to these DPCs. However, the authors find that structured DPCs--despite their superior ratings--have failed to live up to their initial promise and have yet to gain a competitive edge as intermediaries in the derivatives markets.
Economic Policy Review , Volume 2 , Issue Apr , Pages 17-37

Price formation and liquidity in the U.S. Treasury market: evidence from intraday patterns around announcements

We identify striking adjustment patterns for price volatility, trading volume, and bid-ask spreads in the U.S. Treasury market when public information arrives. Using newly available high-frequency data, we find a notable lack of trading volume upon a major announcement when prices are most volatile. The bid-ask spread widens dramatically with price volatility and narrows just as dramatically with trading volume. Trading volume surges only after an appreciable lag following the announcement. High levels of price volatility and trading volume then persist, with volume persisting somewhat longer.
Staff Reports , Paper 27



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