Publication Date
Financial Markets Group Discussion Papers DP 930
UK government bond yields tend to rise in a two-day window before labor market data releases and monetary policy news. This effect, particularly pronounced during UK bond issuances, is linked to higher term premia. Financial intermediary constraints play a role as dealers avoid accumulating inventory in pre-news windows with issuances. The composition of liquidity providers also shifts: hedge funds buy a larger share of the bond issuance outside pre-news windows, but more passive investors, such as foreign central banks and pension funds, provide liquidity in pre-news windows. We outline a simple model to rationalize these findings.
