Pre-Refunding Announcement Gains in U.S. Treasurys

Chen Wang and Kevin Zhao
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Chen Wang: University of Notre Dame

No xucf8, SocArXiv from Center for Open Science

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.

Date: 2024-03-21
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:xucf8

DOI: 10.31219/osf.io/xucf8

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