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- Title
Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve.
- Authors
BRANDT, MICHAEL W.; KAVAJECZ, KENNETH A.
- 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.
- Subjects
CAPITAL market; TREASURY bills; INTEREST rates; LIQUIDITY (Economics); MARKET orders; PRICES; FINANCIAL markets; ACCESS to information; MARKET timing; RATE of return
- Publication
Journal of Finance (Wiley-Blackwell), 2004, Vol 59, Issue 6, p2623
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.2004.00711.x