Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve
ABSTRACT We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) account for up to 26% of the day‐to‐day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity is low. All of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve.
Authors: Michael W. Brandt, Kenneth A. Kavajecz
Citations: 391
Published: 2004-11-23T00:00:00.000Z
Why It Matters
Venue: The Journal of Finance. Year: 2004. Citations: 391. Abstract signal: ABSTRACT We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or sellin...
Abstract
ABSTRACT We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) account for up to 26% of the day‐to‐day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity is low. All of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve.
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