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Bond supply, yield drifts and liquidity provision before macroeconomic announcements

Author

Listed:
  • Dong Lou
  • Gabor Pinter
  • Semih Uslu
  • Danny Walker

Abstract

UK government bond yields tend to rise in a two-day window before scheduled macroeconomic announcements such as labour market data releases and monetary policy news. This effect, particularly pronounced during UK bond issuances, is linked to higher term premia. Financial intermediary constraints play a role as dealers avoid accumulating inventory in pre-news windows with issuances. The composition of liquidity providers also shifts: hedge funds buy a larger share of the bond issuance outside pre-news windows, but more passive investors, such as foreign central banks and pension funds, provide liquidity in pre-news windows. We outline a simple model to rationalise these findings.

Suggested Citation

  • Dong Lou & Gabor Pinter & Semih Uslu & Danny Walker, "undated". "Bond supply, yield drifts and liquidity provision before macroeconomic announcements," BIS Working Papers 1232, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1232
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    More about this item

    Keywords

    macroeconomic announcements; interest rate drift; bond supply; liquidity provision;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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