An examination of the impact of macroeconomic news on the spot and futures treasuries markets

In this study we analyze the reaction of daily cash and futures prices for several Treasury securities to the release of U.S. macroeconomic news. Some important results are reported. First, consistent with the notion of market integration, the futures market is found to be cointegrated with the corresponding cash market. Second, of the 23 types of periodic macroeconomic announcements, 19 of them have a significant influence on either the cash or futures prices. Most notably, surprises in nonfarm payroll and Treasury budget significantly influence the cash and futures market across the entire maturity spectrum. Third, consistent with the Fisher and real activity hypotheses, macroeconomic news that conveys higher inflation and/or economic growth has a negative influence on cash and futures prices. Finally, hedging with Treasury futures appears to offer investors protection from inflation‐related fluctuations in interest rates, but not against fluctuations arising due to variations in real output. Some important policy implications of the results are offered. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:453–478, 2004