Long Run Impact of Macro News on Treasury Bond Yields

Does the macroeconomic information in data releases shape bond yields in the long-term? We offer evidence that the new information embedded in high-frequency bond price changes around the release of economic data explains at most 40% of yields fluctuations at longer horizons, and as low as 20% in the long run. From the perspective of a theoretical model in which investors learn from the releases about the path of future short rates, our empirical findings suggest that investors’ expectations about future monetary policy actions are updated largely based on information revealed outside of the releases. Our results cast doubts on a transparent monetary policy response function linking macroeconomic surprises to the path of interest rates.