Macro news, risk-free rates, and the intermediary: customer orders for thirty-year Treasury futures

Albert Menkveld, Asani Sarkar and Michel van der Wel ()

No 307, Staff Reports from Federal Reserve Bank of New York

Abstract: Customer order flow correlates with permanent price changes in equity and non-equity markets. We examine macro news events in the thirty-year Treasury futures market to identify causality from customer flow to risk-free rates. We remove the positive feedback trading effect and establish that, in the fifteen minutes subsequent to the news, intermediaries rely on customer orders to determine a substantial part of the announcement?s effect on risk-free rates?about one-third relative to the instantaneous effect. Intermediaries appear to benefit from privately observing informed customers, since their own-account trade profitability correlates with access to customer flow, controlling for volatility, competition, and the macro ?surprise.?

Keywords: Treasury bonds; Stock - Prices; Intermediation (Finance); Financial markets; Futures; Macroeconomics (search for similar items in EconPapers)
Date: 2007
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