Staff Reports

Price Formation and Liquidity in the U.S. Treasury Market: Evidence from Intraday Patterns Around Announcements

July 1997Number 27
JEL classification: G14

Authors: Michael J. Fleming and Eli M. Remolona

We identify striking adjustment patterns for price volatility, trading volume, and bid-ask spreads in the U.S. Treasury market when public information arrives. Using newly available high-frequency data, we find a notable lack of trading volume upon a major announcement when prices are most volatile. The bid-ask spread widens dramatically with price volatility and narrows just as dramatically with trading volume. Trading volume surges only after an appreciable lag following the announcement. High levels of price volatility and trading volume then persist, with volume persisting somewhat longer.

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For a published version of this report, see Michael J. Fleming and Eli M. Remolona, "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance 54, no. 5 (October 1999): 1901-15.