 What moves treasury yields?Emanuel Moench and Soroosh Soofi-Siavash Journal of Financial Economics, 2022, vol. 146, issue 3, 1016-1043 Abstract: We identify a yield news shock as an innovation that does not move Treasury yields contemporaneously but explains a maximum share of their future variation. Yields do not immediately respond to the news shock as the initial reaction of term premiums and expected short rates offset each other. While the impact on term premiums fades quickly, expected short rates and thus yields decline persistently. As a result, the shock explains a staggering 50% of Treasury yield variation several years out. A positive yield news shock is associated with a coincident sharp increase in stock and bond market volatility, a contemporaneous response of leading economic indicators, and is followed by a persistent decline of real activity and inflation which is accommodated by the Federal Reserve. Identified shocks to realized stock market volatility and business cycle news imply similar impulse responses and together capture the bulk of variation of the yield news shock. Keywords: Term structure of interest rates; Yield curve; News shocks; Volatility shocks; Business cycle news; Structural dynamic factor models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:3:p:1016-1043 DOI: 10.1016/j.jfineco.2022.04.001 Access Statistics for this article Journal of Financial Economics is currently edited by G. William Schwert More articles in Journal of Financial Economics from Elsevier |
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