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The Effects of Economic News on Bond Market Liquidity

Chris D'Souza and Charles Gaa

Staff Working Papers from Bank of Canada

Abstract: The authors contrast the impact of two sources of information flow on the volatility of prices, trading activity, and liquidity in the brokered interdealer market for Government of Canada bonds. Liquidity varies with the amount of asymmetric information in the market, and order flow plays a central role in the processing of information. The authors find a two-stage adjustment process in the period before and after a scheduled 8:30 a.m. macroeconomic news announcement that is similar to the adjustment process documented by Fleming and Remolona (1999) for the U.S. Treasury market. They contrast these dynamics with the adjustment that occurs around a Government of Canada bond auction. Results are somewhat inconsistent with the patterns observed around macroeconomic news events, but are explained by theory.

Keywords: Financial markets; Market structure and pricing; Debt management (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2004
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-fmk
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