Turn-of-the-month and Intramonth Effects in Government Bonds: Explanation from the Important US Macroeconomic News Announcements

Abstract

Recent evidence from the US, UK, French and German stock markets suggest that the turn-of-the-month (hereafter TOM) and intramonth anomalies arise from the systematic monthly release of important US macroeconomic news that are clustered on the first half of the month. This study investigates whether the government bond markets of the US and Germany suffer from the same TOM and intramonth effects caused by the clusterization of important US macroeconomic news announcements, or not. In order to do this, first, the existence of these effects on the selected bond markets is tested. Second, the impacts of the selected macroeconomic news on the bond returns are investigated. And, finally, the existence of the TOM and intramonth effects after the impacts of the announcements have been controlled for is tested.

This study uses daily government benchmark bond index data from the time period of January 2001 through December 2006. Two different maturity indexes (2-year and 10-year) from both countries, the US and Germany, are used to gain a comprehensive understanding of the influence of time to maturity on the results. A selection of nine different important US macroeconomic news announcements is done based on the previous literature and anticipated importance of the news.

The results are obtained using simple regression models, which control for autocorrelation, volatility clustering and other calendar effects. The main findings of the study imply that the scheduled US macroeconomic news announcements responsible for the TOM and intramonth effects on the stock markets do not cause these effects to appear on the government bond markets. A small TOM effect, or actually a month-end effect, is found as the results of all four indexes reveal a statistically significant positive return on the last trading day of the month. The results also suggest that the releases of US macroeconomic news do have impact on the bond markets of both countries, especially on the longer maturity indexes. The significantly important announcements just are different on the bond markets than the ones on the stock markets.