Expectations and risk premia at 8:30am: Macroeconomic announcements and the yield curve

Peter Hördahl, Eli Remolona and Giorgio Valente ()

No 527, BIS Working Papers from Bank for International Settlements

Abstract: We investigate the movements of the yield curve after the release of major U.S. macroeconomic announcements through the lenses of an arbitrage-free dynamic term structure model with macroeconomic fundamentals. Combining estimated yield responses obtained using high-frequency data with model estimates using monthly data, we show that bond yields move after announcements mostly because of revisions to expectations about short-term interest rates. Changes in risk premia are also sizable, partly offset the effects of short-rate expectations and help to account for the hump-shaped pattern across maturities. Most announcement responses are due to changes in expectations about the output gap.

Keywords: Bond excess returns; term structure of interest rates; affine models; macroeconomic announcements (search for similar items in EconPapers)
Pages: 54 pages
Date: 2015-11
New Economics Papers: this item is included in nep-mac and nep-mst
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:527

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