91
Macroeconomic Data Releases and the Yield
Curve for the Euro Area
Anders Mølgaard Pedersen, Economics, and Jesper Wormstrup, Financial
Markets
INTRODUCTION
Shifts in the yield curve for the euro area are often explained as reactions to the release of macroeconomic data for the euro area. However,
an empirical analysis in this article shows that, in practice, only a few
data announcements for the euro area have a systematic effect on the
yield curve as measured by the interday change in interest rates. Furthermore, the effect of these data announcements is concentrated in
the short- and medium-term maturity segments of the yield curve. The
yield curve for the euro area thus differs from the yield curve for the
USA, the latter being significantly affected by several US data releases.
For the US yield curve, the effect is also more evenly distributed along
the entire curve.
The article is structured as follows. First, the yield curve for the euro
area as used in this article is defined. The next section discusses various
categories of economic data releases and their influence on interest-rate
formation. The third section sets out the framework and the results of
the empirical analysis of the effect of data releases on the yield curve for
the euro area, and comparison is made with the results of a similar
analysis for the US yield curve. This section also presents a number of
possible explanations for the two yield curves' different reactions to
economic data releases. The last section is a brief summary.
THE YIELD CURVE FOR THE EURO AREA
The concept of a yield curve for the euro area became relevant with the
establishment of the European Central Bank, ECB, and the introduction
of the euro on 1 January 1999. The individual euro-area member states
still have national yield curves, but the spreads between them have narrowed considerably in view of the single monetary policy and the elimination of exchange-rate uncertainty. The integration has been particu-
Antal sider: Rev. nr. Oprettet af Jesper Wormstrup
92
10-YEAR YIELD DIFFERENTIAL TO GERMANY FOR SELECTED EMU MEMBER STATES,
1995-2001
Chart 1
Per cent
8
7
6
5
4
3
2
1
0
-1
1995
1996
France
1997
Italy
1998
Spain
1999
Netherlands
2000
2001
Belgium
larly strong at the short-term end of the yield curve, which is normally
defined as the curve of money-market transactions with a maturity of up
to one year. Today, the integration of the money markets of the
euro-area member states is for all practical purposes complete, and
1
EURIBOR became the benchmark interest rate for the money market in
the euro area soon after the establishment of EMU.
The existing minor spreads between government-bond yields in the
euro-area member states can be attributed to variations in liquidity and
credit risk. In view of these variations there is no unequivocal definition
of the yield curve for the euro area for the longer maturities. One measure of the yield curve could be weighted averages of the national yield
curves based on e.g. GDP or outstanding government debt. Another
possible measure is the benchmark yield curve for the euro area as defined by financial news services such as Reuters and Bloomberg. The
benchmark yield curves of both these news services normally include a
2
mixture of German and French central-government securities .
The focus of this article is the overnight changes in the general level of
interest rates, so the yield curve for the euro area is merely defined as
the curve of EURIBOR up to 1 year and the yield on German centralgovernment securities at longer maturities. Since the establishment of
1
2
Euro Inter-Bank Offered Rate. EURIBOR is calculated on a daily basis for maturities from one week to
12 months on the basis of rates reported by a number of banks in the euro area.
See Lars Krogh Jessen and Anders Matzen, The Market for Government Bonds in the Euro Area,
Danmarks Nationalbank, Monetary Review, 3rd Quarter 1999.
Antal sider: Rev. nr. Oprettet af Jesper Wormstrup
93
EMU, the yield on German central-government securities has generally
constituted the lower limit as regards yields on central-government
securities in the euro-area member states. Furthermore, and as stated
above, the spread to the yield curves of the other euro-area member
states has been relatively small and generally constant, cf. Chart 1.
MACROECONOMIC DATA RELEASES
The yield curve is affected by countless news items, notably the release of
macroeconomic data. Macroeconomic data, or macroeconomic indicators,
are figures containing information on the current state of the economy,
or on the expectations of future development. Macroeconomic indicators
can be divided into 3 main categories:
• Indicators of prices and wages and monetary aggregates
The inflationary course and inflation prospects play an important role in
interest-rate formation. A rising inflation rate reduces the remuneration
in real terms of a bond investment, and will therefore often cause bond
prices to decline, and yields to rise, until new investors' demand for an
expected real return is fulfilled. Moreover, inflation also affects the official interest rates, since low inflation or price stability is very often
stated to be an objective of monetary policy. This is e.g. the case for the
1
ECB, whose clear and sole objective is to maintain price stability , and
for the Federal Reserve in the USA, although the latter's objective also
includes other elements such as high employment. Indications of rising
inflation may lead to a tightening of monetary policy, i.e. the raising of
official interest rates, and thereby higher short-term market interest
rates.
Normally the primary focus is on consumer prices. Other important
data releases might be wholesale, producer and import prices, since
their development indicates the future course of consumer prices. Indicators of wages and monetary aggregates are often also closely fol2
lowed .
• Real economic indicators
Important real economic indicators are national accounts data (including growth in GDP), industrial output and retail sales, as well as
labour-market indicators such as unemployment, employment and
productivity. An increase in economic activity normally entails upward
pressure on prices and higher interest rates.
1
2
According to the definition of the ECB's Governing Council price stability is a year-on-year increase in
consumer prices (HICP) of below 2 per cent in the medium term.
Monetary aggregates are of special interest if they are included in the formulation of the monetary-policy strategy. The ECB's monetary-policy strategy assigns a prominent role to the broad monetary aggregate for the euro area, M3.
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IMPORTANT BUSINESS AND CONSUMER SURVEYS IN THE EURO AREA AND
THE USA
Box 1
The euro area
• The German IFO index
This indicator is based on more than 7,000 business enterprises' assessments of the
current and future economic situation, and is regarded as the best cyclical indicator
for Germany. The indicator is prepared on a monthly basis by the IFO institute
(Institut für Wirtschaftsforschung), which is an economic research unit.
• The French INSEE index
This indicator is deemed to be the best cyclical indicator for France. It is based on
evaluations from around 4,500 business enterprises. The survey is prepared on a
monthly basis by France's national statistical bureau, INSEE.
• Reuters PMI (Purchasing Manager Index)
The Reuters news agency conducts a monthly confidence survey among the purchasing managers of more than 2,500 business enterprises in the manufacturing sector in
Germany, France, Italy, Spain, Ireland, the Netherlands, Austria and Greece. A similar
index for the service sector is based on the assessments of purchasing managers of
around 2,000 business enterprises in the first five of the countries mentioned above.
Reuters PMI corresponds to the NAPM index in the USA, cf. below.
• The Business and Consumer Surveys of the European Commission
The European Commission prepares monthly surveys of the confidence among consumers and business enterprises in the individual euro-area member states, as well as
for the euro area as a whole. In the aggregate index the national indices are
weighted according to the size of the economy.
USA
• The NAPM index
The National Association of Purchasing Management conducts a monthly survey of
around 350 purchasing managers in the manufacturing sector. Despite the limited
reporting population this index has proved to be a valuable indicator of economic
development. A corresponding index is published for the service sector, although
with a shorter history.
• Business confidence, Federal Reserve Bank of Philadelphia
The Federal Reserve Bank of Philadelphia conducts a monthly survey of business
confidence in its jurisdiction (Pennsylvania, New Jersey and Delaware). The survey
normally comprises around only 100 major business enterprises, and the index often
shows strong fluctuations. However, in some periods this index has proved to be a
valuable indicator of real-economic activity in the USA as a whole. Another advantage is that the index is published with good timeliness.
• Consumer confidence, Conference Board
The Conference Board business organisation conducts a monthly survey of consumer confidence based on assessments of their financial situation, the national
economy, and the labour-market situation, by around 5,000 US households.
• Consumer confidence, University of Michigan
The University of Michigan also conducts a monthly survey of consumer confidence,
but with a somewhat more limited reporting population of only around 500-600
households. On the other hand, this survey is published earlier than the Conference
Board's survey.
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95
•
Business and consumer surveys
Business and consumer confidence is measured by means of surveys.
They normally comprise an assessment of the current economic situation and the expectations of future development. An increase in consumer or business confidence signals expanding economic activity and
thereby rising inflation, normally entailing higher interest rates. Box 1
outlines a number of important European and US releases of confidence surveys.
Prior to the release of a macroeconomic indicator market agents have
typically formed expectations of its level. The expectations of a number
of major market agents, such as investment banks, are collected by various news services, with a view to calculation and release of consensus
estimates.
A large amount of economic data is published for the euro area. This is
due in particular to the release of both euro-area economic data and
national data. Moreover, for several indicators the national data is published in advance of the aggregate for the euro area. As a consequence,
there is often more focus on the national indicators for the largest
euro-area member states than on the aggregate for the euro area,
which merely represents an aggregate of indicators already released,
and thus contains no new information. Recent years have seen the introduction of several new macroeconomic indicators for the euro area
and the harmonisation of a number of existing economic indicators for
the euro-area member states.
For comparison, in the USA economic data releases normally cover the
entire economy. Furthermore, in contrast to especially the new macroeconomic indicators for the euro area, the US data releases typically have a
long history, which in itself augments their information content.
EMPIRICAL ANALYSIS
This section reviews the results of an empirical analysis of the impact of
1
macroeconomic data on the yield curve for the euro area . The analysis
covers the period since the commencement of the third stage of EMU
(last observation is for 22 June 2001). For the purpose of comparison the
results of a corresponding analysis of the US yield curve for the same
period are also considered.
1
The methodology of the analysis is basically equivalent to the methodology of Martin Brooke,
Graeme Danton and Richild Moessner, News and the sterling markets, Bank of England Quarterly
Bulletin, November 1999. The article examines the impact of various news items, including the release of macroeconomic data, on the UK yield curve.
Antal sider: Rev. nr. Oprettet af Jesper Wormstrup
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Methodology and data
An important assumption of the analysis is that only surprising indicators
can affect the yield curve, since expected key indicators will normally be
incorporated in market prices. This assumption is in accordance with the
1
so-called market efficiency hypothesis . The effect of surprising data
releases is evaluated in terms of the interday change in interest rates.
The analysis examines the effect for the nearest 3-month EURIBOR futures contract (for the USA the nearest 3-month eurodollar futures contract) and a 2-year and a 10-year German (US) government bond (referred to below as the short-term, medium-term and long-term maturity
segments of the yield curve).
The market reaction to each macroeconomic indicator is estimated on
the basis of the equation
∆rj,t = A + B [ ( ni,t – nei,t ) / σi ] + εi,t , εi,t ~ n.i.d (0, σ2ε,i)
e
where ni,t is the realised value of indicator i for observation t, n i,t is
the market expectation hereof before publication, and ∆rj,t is the
change in interest rates on the day of observation t for maturity segment j of the yield curve (j = short-term, medium-term or long-term).
e
Each observation of ni – n i is divided by the standard deviation in the
market surprise since commencement of EMU, σi, which gives a standardised measure of market surprises across macroeconomic indicators. In principle, this makes it possible to compare the results for
several indicators and to estimate the equation for a group of indica2
tors . The interesting parameter in the equation is B, which reflects
the estimated effect of a standardised market surprise. According to
the market efficiency hypothesis the estimated parameter A is expected to be 0.
In practice, the yield curve is affected daily by a host of data releases
and other news items. Measuring the effect of each indicator by the
interday change in interest rates implies "noise" in the analysis, since
this change will also reflect the effect of other news items on the same
day. This contributes to an increased variance in the error term of the
equation, but the mean value of the error term is probably unaffected
(i.e. the noise from other news items on the same day is unbiased). Thus,
1
2
According to the market efficiency hypothesis prices in the financial markets reflect all information
available to the public (or all existing information in the strict version of the hypothesis). Only new
information, such as a surprising data release, can lead to price changes.
In the latter case, the parameters in the equation are restricted to be equal for each indicator. This
type of estimation is particularly useful in a comparison of the effect of two or more groups of
macroeconomic indicators.
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97
the analysis investigates in fact whether the effect of each indicator is
sufficiently strong to systematically override the effects of other news
1
items on the same day .
Bloomberg's consensus estimate is used as a measure of the market
2
expectations of the data release . The underlying market expectations are typically collected a few days ahead, while in principle they
ought to refer to the expectations on the day of announcement of
the indicator. The Bloomberg consensus estimate can nevertheless be
expected to be relatively close to the latter expectations, since expectations of macroeconomic indicators normally remain relatively constant over a few days.
The analysis examines the effects on the yield curve of macroeconomic indicators in all three categories described in the preceding
section. For all indicators the a priori expectation is a positive value
of B (except for unemployment). This implies that a higher realised
value than the consensus estimate is expected to cause interest rates
to rise (and vice versa for the unemployment rate). The literature on
market reactions to economic data releases often draws a distinction
3
between two explanations of this relation . Firstly, a surprisingly positive data release can lead to an increase in market participants' expectations of future inflation (the "inflation expectations hypothe4
sis") . Under normal circumstances the market reaction will be an
upward shift in the yield curve. Secondly, a surprisingly positive data
release may also give rise to expectations of a future tightening of
the monetary-policy stance (the "policy expectations hypothesis").
Even given unchanged inflation expectations the market reaction will
be the same in that case, i.e. an upward shift in the yield curve. In
practice, the market reaction to a surprising data release will often
reflect a combination of these two explanations. However, a large
market reaction for the short-term and medium-term maturity segments of the yield curve would indicate amended expectations of
monetary policy, while a strong reaction for the long-term segment
points to amended inflation expectations.
1
2
3
4
The literature on market reactions to data releases contains several studies based on intraday data
for both the US and UK yield curves, see e.g. Michael J. Fleming and Eli M. Remolona, Price formation
and liquidity in the U.S. treasury market: Evidence from intraday patterns around announcements,
Staff Reports, No. 27, Federal Reserve Bank of New York, and Andrew Clare and Roger Courtenay,
Assessing the impact of macroeconomic news on securities prices under different monetary policy
regimes, Working Paper, No. 125, Bank of England, 2001.
Bloomberg consensus estimates are not available for certain observations. Instead the consensus
estimates published by Deutsche Bank Global Markets Research have been applied as far as possible.
See e.g. Michael Joyce and Vicky Read, The impact of inflation news on financial markets, Bank of
England Quarterly Bulletin, February 1999.
The nominal interest rate can theoretically be divided into an expected real interest rate, an expected inflation rate, and possibly a risk premium. In terms of the inflation expectation hypothesis
the real-interest-rate expectations and the risk premium are assumed to be unchanged.
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98
THE EFFECT OF DATA RELEASES ON THE YIELD CURVE FOR THE EURO AREA
3-month
EURIBOR future
Key indicators
B
2-year
government bond
t
value
R
B
t
value
R
2
2
Table 1
10-year
government bond
B
t
value
2
R
Euro area
M3......................................
Consumer prices ...............
Industrial output ...............
Reuters PMI1 ......................
1.20
1.26
1.19
*2.20
0.64
0.11
1.24
1.99
0.02
0.00
0.18
0.16
1.95
- 1.61
1.31
**3.07
0.73
0.14
1.37
2.21
0.02
0.00
0.21
0.19
-1.03
0.06
0.57
1.66
0.45
0.01
0.94
1.36
0.01
0.00
0.11
0.08
Germany
Consumer prices2 ...............
Producer prices..................
Industrial output ...............
Unemployment .................
IFO index1 ..........................
0.68
0.70
*1.95
*1.84
**1.40
0.83
1.38
1.99
2.02
2.74
0.03
0.07
0.14
0.13
0.21
0.69
0.74
**2.32
0.89
***2.36
0.53
0.99
2.27
0.77
3.08
0.01
0.04
0.17
0.02
0.25
0.67
1.21
**1.52
0.62
1.15
0.67
1.48
2.34
0.71
1.40
0.02
0.08
0.18
0.02
0.07
France
Consumer prices ................
INSEE index1 .......................
0.32
*2.32
0.43
2.46
0.01
0.46
0.46
0.37
0.53
0.24
0.01
0.01
1.15
0.56
1.61
0.40
0.09
0.02
Italy
Consumer prices3 ...............
0.55
1.17
0.05
0.36
0.52
0.01
0.01
0.02
0.00
-0.48
1.11
0.04
- 0.12
0.15
0.00
-0.07
0.08
0.00
0.85
1.42
***3.18
1.22
1.73
4.20
0.05
0.27
0.39
0.65
2.50
***3.15
0.70
1.24
3.05
0.02
0.16
0.25
0.27
3.24
***3.62
0.28
1.80
3.80
0.00
0.29
0.34
0.56
0.79
0.02
0.64
0.60
0.01
-0.26
0.27
0.00
***1.54
2.85
0.23
**1.60
2.22
0.15
0.57
0.81
0.02
***0.91
4.35
3.34
0.06
0.05
***0.99
3.77
2.82
0.04
0.04
***0.57
2.54
2.77
0.02
0.03
USA
Capacity utilisation............
Non-agricultural
employment ......................
Employment Cost Index4 …
NAPM index1......................
Business confidence,
Federal Reserve Bank of
Philadelphia1......................
Consumer confidence,
Conference Board1 ............
Groups of indicators
Euro area5 ..........................
USA6 ...................................
***0.81
***0.96
***0.92
Note: *** / ** / * = Significant at a confidence level of 1 per cent/5 per cent/10 per cent.
1
See more details in Box 1.
2
The first estimate of consumer prices based on data from 6 German states.
3
The first estimate of consumer prices based on data from 12 Italian cities.
4
Employment Cost Index is an index of business enterprises' total labour costs, published on a quarterly basis.
5
The indicators in the Table and GDP in Germany, France and Italy.
6
The indicators in the Table, industrial output in the USA, and the consumer-confidence index of the University of
Michigan, i.e. the indicators with a significant effect on the US yield curve, cf. Table 2.
The effect of data releases on the yield curve for the euro area
Table 1 shows the estimates of the aforementioned equation for the
euro area's yield curve based on various macroeconomic indicators. The
indicators are selected on the basis of the daily market reports in the
Financial Times and the Wall Street Journal and comprise national data
releases for the major euro-area member states, data releases for the
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99
1
total euro area, as well as data releases for the USA . The Table also
shows the results of two regressions with selected groups of indicators
for the euro area and the USA.
For most combinations of individual indicators and maturity segments of the yield curve the estimated parameter B has the expected
sign. However, B only has statistical significance for relatively few indicators and segments of the yield curve. As regards euro-area indicators
this is the case for the German IFO index for the short-term and
medium-term segments, growth in German industrial output for the
entire yield curve, the French INSEE index for the short-term segment,
and the confidence index for purchasing managers in the euro area
(Reuters PMI) for the short-term and medium-term segments. Furthermore, Germany's unemployment rate has a significant effect on the
short-term segment of the yield curve, but the sign of B is positive
against an expected negative sign. Among the US indicators the estimated value of B is significant for the NAPM index (the entire yield
curve) and the Conference Board consumer-confidence index (the
short-term and medium-term segments). As expected, the estimated
parameter A is insignificant in all the regressions showing a significant
value of B (the parameter A is not shown in the Table).
It is noteworthy that these indicators primarily have a significant effect
on the short- and medium-term maturity segments of the yield curve.
This indicates that in the event of surprising outcomes for these indicators market participants especially tend to adjust their expectations of
future monetary policy, while their inflation expectations remain unchanged. This reflects a considerable degree of credibility as regards the
monetary policy of the euro area. In the event of underlying tendencies
for increasing inflation in the euro area the ECB is expected to react by
tightening monetary policy in order to maintain price stability.
Among the various categories of indicators the business and consumer
surveys appear to have the greatest impact on the yield curve for the
euro area. This indicates that market participants give more weight to
these forward-looking indicators than to other data releases. On the
other hand, none of the selected indicators of the price development
has a significant effect on the yield curve. This also holds for the preliminary estimates of consumer-price inflation in Germany and Italy,
which otherwise attract a certain amount of attention, according to the
1
The equation has also been estimated for the following macroeconomic indicators: import prices,
wholesale prices and GDP in Germany, industrial output, consumer confidence and GDP in France,
industrial output and GDP in Italy, unemployment and producer prices in the euro area, consumer
prices, industrial output, retail sales and unemployment in the USA, and the consumer-confidence
index of the University of Michigan. All the regressions with these indicators showed an insignificant
2
value of B as well as a very low explanatory power (an R close to zero).
Antal sider: Rev. nr. Oprettet af Jesper Wormstrup
100
1
market reports of the financial press . The limited market reaction, if
any, to inflation data may reflect that the ECB's monetary policy is based
on the price development in the medium term, rather than on current
inflation.
Apart from Reuters PMI, none of the selected indicators for the euro
area as a whole has a significant effect on the yield curve. This also applies to the broad monetary aggregate for the euro area, M3, as defined
by the ECB. The result is remarkable in view of M3's prominent position
in the ECB's monetary-policy strategy. Furthermore, M3 is one of the few
indicators for the euro area as a whole to be released earlier than the
2
underlying national data . In general, however, the results in Table 1
concerning indicators for the euro area should be interpreted with more
caution than the other results. This is due to a smaller number of observations in these estimations, since for these indicators surveys of market
expectations are only available for the last 12-18 months.
According to the market reports of the financial press US data releases
can affect the yield curve for the euro area via an effect on the US yield
curve. In other words, there is an assumed relationship between the US
3
yield curve and the yield curve for the euro area . In Table 1 the impact
of US data releases is most clearly seen in the regressions with the se4
lected group of US indicators . In all three regressions B is statistically
significant at a confidence level of 1 per cent. Moreover, the explanatory
2
power (measured as R ) is the same as for the equivalent regressions
based on selected indicators for the euro area. These results suggest that
the impact of US indicators on the yield curve for the euro area is in fact
comparable to the impact of indicators for the euro area.
5
Effect of data releases on the US yield curve
Table 2 shows the results for the US yield curve of the same regressions
as in Table 1. As above, the US indicators in Table 2 have been selected
on the basis of market reports in the Financial Times and the Wall Street
Journal. Table 2 also includes a number of indicators for the euro area
1
2
3
4
5
The estimates are based on 6 German states and 12 Italian cities, and are published earlier than the
inflation data for other euro-area member states. Data for the German states is typically published
over 2 days, so the market reaction can also be expected to take place over two days. The regressions
in Table 1 are based on the total change in interest rates over the two days. Regressions based on the
change in interest rates on the first or second day did not yield better results.
The PMI for the euro area is published on the same day as the underlying national indices.
This relationship is empirically confirmed in Christian Ølgaard, Short-Term Correlations between
10-Year Government Bond Yields in Selected Countries. Danmarks Nationalbank, Monetary Review,
May 1997.
The macroeconomic indicators in the regressions with several indicators are stated in a footnote to
the Table. Regressions using other combinations of indicators for the euro area and the USA did not
yield better results.
There are several studies of the effect of macroeconomic indicators on the US yield curve. A recent
review is e.g. Michael J. Fleming and Eli M. Remolona, What moves the bond market?, Economic
Policy Review, Federal Reserve Bank of New York, December 1997. These studies typically show that a
number of US data releases have significant effects on the yield curve.
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101
THE EFFECT OF DATA RELEASES ON THE US YIELD CURVE
3-month
eurodollar future
Key indicators
B
USA
Consumer prices .................
0.67
Industrial output ................ *1.55
Capacity utilisation............. ***2.40
Non-agricultural
employment ....................... ***3.87
Unemployment................... -1.32
Employment Cost Index
*2.69
Retail sales ..........................
0.86
House sales ......................... **-1.89
NAPM index1 ....................... ***2.41
Business confidence,
Federal Reserve Bank of
Philadelphia1 ....................... **1.70
Consumer confidence,
Conference Board1 .............. ***2.27
Consumer confidence,
1.81
University of Michigan1 ......
Table 2
2-year
government bond
t
value
R
B
t
value
R
0.82
1.90
3.26
0.02
0.11
0.28
0.78
1.37
** 2.17
0.66
1.42
2.37
0.02
0.07
0.17
3.88
1.09
2.29
1.03
2.07
3.74
0.35
0.04
0.40
0.04
0.13
0.33
***4.70
-0.81
***6.14
0.59
-0.94
**3.07
3.95
0.55
3.58
0.61
0.78
2.28
0.36
0.01
0.62
0.01
0.02
0.16
2.22
0.15
0.96
0.95
4.78
0.46
***3.00
1.67
0.11
10-year
government bond
t
value
R
0.34
1.50
*1.89
0.27
1.42
1.84
0.00
0.07
0.11
**3.28
- 0.31
***5.57
0.68
- 1.16
**3.49
2.74
0.23
3.98
0.58
0.98
2.61
0.21
0.00
0.66
0.01
0.03
0.20
0.03
1.07
1.07
0.04
3.89
0.36
***3.00
3.11
0.26
**2.82
2.21
0.18
2.44
1.66
0.11
2
2
B
2
Euro area
M3.......................................
Reuters PMI1........................
0.10
1.09
0.13
1.01
0.00
0.05
0.98
1.78
0.89
1.21
0.03
0.07
0.33
0.95
0.34
0.66
0.00
0.02
Germany
Industrial output ................
IFO index1 ............................
0.26
0.53
0.52
1.00
0.01
0.03
0.08
1.56
0.08
1.65
0.00
0.09
0.07
1.40
0.07
1.30
0.00
0.06
France
INSEE index1 ........................
0.89
0.85
0.09
1.13
0.75
0.07
2.66
1.33
0.20
Groups of indicators
USA2 .................................... ***1.30
Euro area3 ...........................
0.20
4.94
0.71
0.07
0.00
***1.60
4.67
1.41
0.06
0.01
***1.48
4.22
1.30
0.05
0.01
0.60
0.55
Note: *** / ** / * = Significant at a confidence level of 1 per cent/5 per cent/10 per cent.
1
See more details in Box 1.
2
The indicators in the Table.
3
The indicators in the Table and consumer prices in Germany and Italy (first estimate).
from Table 1. Furthermore, it also presents the results of two regressions
using a selected group of indicators for the USA and the euro area.
Table 2 shows that several US indicators have a significant effect on
the US yield curve. This applies to a number of business and consumer
1
surveys, as well as real-economic indicators . Furthermore, in many cases
the effect is significant for the entire yield curve, and in all cases significant values of B have the expected sign (except house sales). Several of
1
Industrial output and capacity utilisation in the USA are published on the same day. This is also the
case for unemployment and non-agricultural employment (as part of the monthly employment report). The results in Table 2 show that surprising releases for capacity utilisation and employment
appear to have a stronger market effect than surprising announcements for industrial output and
unemployment.
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102
the regressions also have a relatively high explanatory power compared to
the regressions in Table 1.
By contrast, none of the selected data releases for the euro area has a
significant effect on the US yield curve. Furthermore, the estimated
value of B is insignificant in the regressions with the group of indicators
for the euro area. These results are in line with the market reports of
e.g. the financial press where conditions in the euro area are seldom
credited with being of any significance to interest-rate formation in the
USA. This mirrors inter alia that changes in the yield curve for the euro
area are normally never seen to have any impact on the US yield curve.
This asymmetry of effects on the yield curve in the USA and the euro
area is difficult to explain, but may be attributable to such factors as the
considerable size of the US bond market and the short history of the
euro as a currency of issue in the international financial markets.
Explanations of variations in market reactions
The observed variation in the effect of data releases on the yield curve
for the euro area and the USA may be due to several factors. Firstly, the
yield curve for the euro area is affected daily by more data releases than
is the case for the US yield curve. The reason is that the yield curve for
the euro area is influenced by indicators for the whole euro area, and
for the individual euro-area member states, as well as several US data
releases. As a consequence, the overnight effect on interest rates of one
data release will often be set off by the effect of another release. This
increases the degree of uncertainty in determining the systematic overnight effect of individual indicators.
Another explanation is based on the existing practice for announcement of macroeconomic indicators in the euro area. Many indicators are
actually published over several days, since the underlying national data
are released gradually on the days prior to release of the aggregate. The
adjustment of the yield curve in the euro area thus also takes place over
several days, with relatively moderate observable day-to-day changes in
interest rates. Furthermore, the indicator for the whole euro area will
not typically trigger any significant market reaction, since this information will already be known at the time of publication.
Thirdly, in part of the period since the commencement of the third
stage of EMU interest-rate formation may have been subject to uncertainty concerning the importance of individual data releases. For example, bond-market participants have had to form an opinion of the ECB's
"response function", including the ECB's weighting of various indicators.
Furthermore, the short history of several new indicators for the euro
area has made many data releases difficult to assess. For a certain period
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103
this uncertainty may have contributed to dampening the market reaction to individual data releases.
Finally, the market participants may have built up expectations of a
different response function from respectively the Federal Reserve and
the ECB based on the differing formulated objectives of the two central
banks. For example, the ECB's more clear-cut objective of maintaining
price stability may have supported expectations of a stronger monetarypolicy response to data releases signalling rising inflation. This may have
contributed to dampening the effect on inflation expectations in the
euro area and thereby also on the long-term maturity segment of the
yield curve. It also explains why the impact on the yield curve for the
euro area has mainly been concentrated on the short-term and mediumterm maturity segments. By comparison, the expectations of the US
monetary-policy response to equivalent data releases may have been
more subdued, which explains the stronger effect on inflation expectations and the long-term maturity segment of the US yield curve.
CONCLUDING REMARKS
The release of (surprising) macroeconomic data is normally regarded as a
significant factor contributing to changes in a country's yield curve.
However, only relatively few indicators for the euro area appear to have
a systematic effect on the yield curve for the euro area (in overnight
terms). Furthermore, data releases for the euro area and for the US seem
to have a somewhat comparable impact on the euro area yield curve. In
contrast, the US yield curve is significantly affected by several, solely
domestic, macroeconomic indicators.
The assessment of the analysis must take into account that the period
under review is relatively short and may be affected by several specific
factors relating to the transition to the third stage of EMU. It is likely that
the effect of certain data releases varies over time, depending e.g. on the
current economic problems. Furthermore, any uncertainty concerning the
important data releases for the euro area can also be expected to diminish over time, thereby increasing their effect on the yield curve.
The analysis has considered the overnight effects on interest rates of
macroeconomic indicators. Alternatively, it could have examined the
intraday effects on the yield curve. Existing studies of the intraday effects of data releases suggest that most of the market reaction normally
takes place shortly after the announcement. An analysis of the intraday
effect of key indicators will probably show that additional indicators for
the euro area have a significant effect on the yield curve, since it will
more often be possible to isolate the effect of other data releases and
other news items on the same day.
Antal sider: Rev. nr. Oprettet af Jesper Wormstrup