Minute-by-minute dynamics of the Australian bond futures market in response to new macroeconomic information

Abstract

This paper investigates the response efficiency of the 10 year Australian Commonwealth bond futures market to the news content of the Australian scheduled information release from January 1993 to July 1997. Using Money Market Services market expectations data to generate the news component of announcements, we find that the futures price falls in response to higher than expected current account deficit, inflation, GDP and retail sales announcements, whereas an unexpected rise in unemployment raised it. In addition to the price response, there is strong evidence of elevated volatility of the price and of trading volumes following all five news announcements. More importantly, most of the market adjustments (of price and volatility) to new information were completed during the first minute following each news announcement suggesting market efficiency of the Australian futures market. The trading volumes, on the other hand, continue to respond to news for 1 h following the news release. This suggests that, after the new equilibrium price has been quickly established and its volatility dispersed, volume trading persists for the purposes of portfolio re-balancing by liquidity traders and for establishing a complete consensus amongst traders.