Abstract
The study of macroeconomic news impact on government bond gets little attention, especially in emerging markets. Andritzky et al. (2007) and Nowak et al. (2011) study this impact for some emerging countries, but little attention given to Asian countries. The question about whether macroeconomic news have impacts on government bond is important, considering the large amount of government bonds outstanding in Indonesia and the importance of regulation to maintain the stabilization of bond price. This research use daily returns of Indonesian government bond benchmark series over five-year period to investigate the impact of domestic and global macroeconomic news announcements. We study the relationship using event study approach. Following common literature we use surprise component of macroeconomic news announcements, which will be defined as the difference between market expectation and the actual release of the macroeconomic news. We use economic forecast survey conducted by Bloomberg as the proxy of market expectations needed to calculate domestic (Indonesia) and global (US) macroeconomic news announcements surprises. We find that, for bond returns, surprises of global macroeconomic news announcements is more important than domestic ones, especially for recent years, while both surprises of global and domestic macroeconomic news announcements affect bond returns volatility.
Highlights
Returns of investments cannot be guaranteed, even for fixed income securities such as bonds
This paper study impact of the macroeconomic news on Indonesian government bond price and volatility
Using daily returns of benchmark series of Indonesian government bond period 2010-2014 as dependent variable and macroeconomic news surprises as independent variables, we find that domestic news impact is very little, except for the surprise of BI rate news
Summary
Returns of investments cannot be guaranteed, even for fixed income securities such as bonds. Even though the future cash streams of a bond is known, there is no 100% guarantee that all of the cash streams will be received by the investor, because there is credit risk which may lead the default of the payment. This is applied to government bonds, despite its use as risk free asset in many financial calculations. Investors who invest in a corporate stocks or bonds will value both financial and non-financial information of the corporate, which is the investment’s underlying value. It will be the same with investors who invest in government bonds They will value financial and non-financial information about the government of the countries so they can adjust their expectation toward the bonds
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