U.S. macroeconomic news and low-frequency changes in bond yields in Canada, Sweden and the U.K

Bingxin Ann Xing, Bruno Feunou, Morvan Nongni-Donfack and Rodrigo Sekkel

Journal of Banking & Finance, 2024, vol. 168, issue C

Abstract: This paper investigates the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden, and the U.K. We follow two complementary approaches: First, we apply a regression-based framework that aggregates the impact of daily macroeconomic news on bond yields to a lower quarterly frequency. Next, we estimate a macro-finance affine term structure model linking the daily news to lower-frequency changes in bond yields and its expectations and term premia components. Both approaches show that U.S. macroeconomic news is an important source of lower-frequency quarterly fluctuations in bond yields in these open economies, and even more important than their respective domestic macroeconomic news. Furthermore, the macro-finance model shows that U.S. macroeconomic news is particularly important in explaining low-frequency changes in the expectation components of the nominal, real, and break-even inflation rates.

Keywords: Macroeconomic news; Bond yields; Break-even inflation rates; Small open economies (search for similar items in EconPapers)
JEL-codes: E43 E44 E47 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:168:y:2024:i:c:s0378426624001845

DOI: 10.1016/j.jbankfin.2024.107270

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