Staff Working Paper No. 998
By Dong Lou, Gábor Pintér, Semih Üslü and Danny Walker
UK government bond yields tend to rise in a two-day window before labour market data releases and monetary policy news. This effect, particularly pronounced during UK bond issuances, is linked to higher term premia. Financial intermediary constraints play a role as dealers avoid accumulating inventory in pre-news windows with issuances. The composition of liquidity providers also shifts: hedge funds buy a larger share of the bond issuance outside pre-news windows, but more passive investors, such as foreign central banks and pension funds, provide liquidity in pre-news windows. We outline a simple model to rationalise these findings.
This version was updated in October 2024. The Staff Working Paper was first published on 21 October 2022 under the title ‘Bond supply, price drifts and liquidity provision before central bank announcements’.
Bond supply, yield drifts, and liquidity provision before macroeconomic announcements
