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

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

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.

Suggested Citation

  • Ann Xing, Bingxin & Feunou, Bruno & Nongni-Donfack, Morvan & Sekkel, Rodrigo, 2024. "U.S. macroeconomic news and low-frequency changes in bond yields in Canada, Sweden and the U.K," Journal of Banking & Finance, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:jbfina:v:168:y:2024:i:c:s0378426624001845
    DOI: 10.1016/j.jbankfin.2024.107270
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    More about this item

    Keywords

    Macroeconomic news; Bond yields; Break-even inflation rates; Small open economies;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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