Macroeconomic announcements and bond market volatility

Abstract

This paper examines the interaction between announcements and volatility in European bond markets, and to what extent conditional volatility is triggered by macroeconomic announcements. As volatility is usually associated with large shocks, which are in turn connected with macroeconomic announcements, it is obvious to test the relation between announcements and asymmetries. Most of the announcements affect market volatility. Results show that macroeconomic news reduces volatility and stabilizes yields. Also, the impact of macroeconomic announcements on bond yields depends on the general state of the economy, for example whether an economy is in an expansion or a recession. In subsamples, macroeconomic releases have the tendency to matter less for more stable economies. Finally, individual macroeconomic news does not have a systematic effect on the daily change in yields and among the most significant macro releases are producer price index, industrial production and unemployment rate.