Major U.S. economic announcements drive bond yield movements and risk premia.
The article examines how the yield curve changes after important U.S. economic announcements. By analyzing data and using a model, the researchers found that bond yields move mainly due to shifts in expectations about short-term interest rates. Changes in risk premia also play a role, balancing out the effects of short-rate expectations and explaining the curve's shape. The responses to announcements are mostly driven by changes in expectations about the output gap.