Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information |
| |
Authors: | Michael J. Fleming,& Eli M. Remolona |
| |
Affiliation: | Federal Reserve Bank of New York,;Bank for International Settlements and the Federal Reserve Bank of New York |
| |
Abstract: | The arrival of public information in the U.S. Treasury market sets off a two-stage adjustment process for prices, trading volume, and bid-ask spreads. In a brief first stage, the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume, demonstrating that price reactions to public information do not require trading. The spread widens dramatically at announcement, evidently driven by inventory control concerns. In a prolonged second stage, trading volume surges, price volatility persists, and spreads remain moderately wide as investors trade to reconcile residual differences in their private views. |
| |
Keywords: | |
|
|