Further evidence on the impact of economic news on interest rates

Dominique Guegan and Florian Ielpo
Additional contact information
Dominique Guegan: Centre d'Economie de la Sorbonne

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: US interest rates'overnight reaction to macroeconomic announcements is of tremendous importance trading fixed income securities. Most of the empirical studies achieved so far either assumed that the interest rates' reaction to announcements is linear or independent to the state of the economy. We investigate the shape of the tern structure reaction of the swap rates to announcements using several linear and non-linear time series models. The empirical results yield several not-so-well-known stylized facts about the bond market. First, and although we used a daily dataset, we find that the introduction of non linear models leads to the finding of a significant number of macroeconomic figures that actually produce an effect over the yield curve. Most of the studies using daily datasets did not corroborate so far this conclusion. Second, we find that the term structure response to announcements can be much more complicated that what is generally found: we noticed at least four types of patterns in the term structure reaction of interest rates across maturities, including the hump-shaped one that is generally considered. Third, by comparing the shapes of the rates' term structure reaction to announcements with the first four factors obtained when performing a principal component analysis of the daily changes in the swap rates, we propose a first interpretation and classification of these different shapes. Fourth, we find that the existence of some outliers in the one-day changes in interest rates usually leads to a strong underestimation of the reaction of interest rates to announcements, explaining the different results obtained between high-frequency and daily datasets: the first type of study seems to lead to the finding of fewer market mover announcements

Keywords: Macroeconomic announcements; interest rates dynamic; outliers; reaction function; principale component analysis (search for similar items in EconPapers)
JEL-codes: E43 E44 G14 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-10
New Economics Papers: this item is included in nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Published in Frontiers in finance and economics, 6, (2), 2009, pp.1-45

Downloads: (external link)
https://shs.hal.science/halshs-00188331 (application/pdf)

Related works:
Journal Article: Further Evidence on the Impact of Economic News on Interest Rates (2009)
Working Paper: Further evidence on the impact of economic news on interest rates (2009)
Working Paper: Further evidence on the impact of economic news on interest rates (2007)
Working Paper: Further evidence on the impact of economic news on interest rates (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:b07062

Access Statistics for this paper

More papers in Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Label ().