Bond supply, yield drifts and liquidity provision before macroeconomic announcements

Dong Lou, Gabor Pinter, Semih Üslü and Danny Walker

No 1232, BIS Working Papers from Bank for International Settlements

Abstract: UK government bond yields tend to rise in a two-day window before scheduled macroeconomic announcements such as labour market data releases and monetary policy news. This effect, particularly pronounced during UK bond issuances, is linked to higher term premia. Financial intermediary constraints play a role as dealers avoid accumulating inventory in pre-news windows with issuances. The composition of liquidity providers also shifts: hedge funds buy a larger share of the bond issuance outside pre-news windows, but more passive investors, such as foreign central banks and pension funds, provide liquidity in pre-news windows. We outline a simple model to rationalise these findings.

Keywords: macroeconomic announcements; interest rate drift; bond supply; liquidity provision (search for similar items in EconPapers)
JEL-codes: D83 D84 G11 G12 G14 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-cba
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