Seminar in Macroeconomics - Jean-Sébastien Fontaine (Bank of Canada)

Macro news have large impact on bond yields in high-frequency data. We aggregate the impact of macro news within each month, which we use in a no-arbitrage term structure models. We find that macro news explain 50 percent in the term premium of the 10-year bond at the monthly frequency and 40 percent at longer horizons. By contrast, macro news explain less than 10 percent of variations in the expectation component of the 10-year bond at monthly or longer horizons. The impact on the expectation component of yields is surprisingly low for all maturities and robust across a range of models, suggesting that investors mostly revise expectations based on information outside of data releases. Overall, macro new explains between 25 and 30 percent of yield variances at monthly or quarterly horizons, consistent with event studies, but this share declines to as low as 20 percent for longer horizons, for all maturities.