1. What Moves the Bond Market? Fleming and Remolona

2. Introduction The goal is to identify the factors that may explain large price changes and large surges in trading activity in the bond market. To that end, the authors instrument statistical exercises to determine the association between bond market movements and announcements of economic indicators.

3. Structure of the Document Anecdotal Evidence Correlation of price changes and trading surges with release times of macroeconomic conditions. Formal Analysis Econometric exercise to evaluate the impact of: »Type of announcement »Magnitude of the surprise element »Market conditions

4. Methodology and Data The bond market is represented with the five-year U.S. Treasury note. High-frequency intraday data for bond market activity is employed. Dates and release times for 21 economic indicators. The sample period is from August 23, 1993 to August 19, 1994.

7. Anecdotal Evidence

13. Econometric Analysis Run a regression Dependent variables: Price volatility as measured by the percentage change in the five minute interval following an announcement. Trading activity: number of transactions during the one-hour interval following the announcement. Independent variables: Announcement dummy variables.

16. Announcement Surprises Add to the regression a variable to measure the surprise component of announcements:

18. Market Conditions Introduce two measures of uncertainty: Volatility derived from options on then-year U.S. Treasury notes. Expected change in the fed funds rate.

20. Conclusions Each of the 25 sharpest price changes and greatest trading surges are associated with a just-released announcement. The largest responses are correlated, in order of importance, with the employment report, producer price index, federal funds target rate, and the consumer price index. Bond market activity responds significantly to the “surprise” component of announcements and market conditions.