Impact of surprises in macroeconomic announcements and revisions : evidence from the US and German sovereign bond market

Abstract

This dissertation examines market responses to major macroeconomic announcements, focusing on the sovereign bonds yields of the United States (US) and Germany. Apart from analysing the impact of the specific event, particular attention was given to the magnitude and sign of the surprise of the selected announcements on the respective bond markets. Furthermore, the impact of revisions to some of the US announcements on the US sovereign bonds was also explored. Finally, the impact of the specific announcement and the surprises was also studied on post announcement days. It was found that US events have more impact on the US and German sovereign yields than the German announcements on the German sovereign yields. Moreover, in the majority of the events for both markets, higher volatility was observed on announcements days. Another interesting finding was that the effect of the US and German announcements had a significant impact on the closing yield on the day of the announcement. In both markets, the effect of the sign of the surprise was more significant than the size of the surprise. Furthermore, during distressed periods, US announcements in relation to the US output and unemployment had a significant impact on German yields when compared to tranquil days. It also resulted that when analysing the macroeconomic revisions during the period under review, the US sovereign bond market was impacted the most by the first and second releases. There were very few instances where the market reacted somewhat to the final releases. Finally, this dissertation also provides evidence that on average, the effect of the selected announcements dies out on the day of the announcement and does not have a significant effect on the closing yields of the post-announcement days.