Bond Implied Risks around Macroeconomic Announcements

Using a large panel of Treasury futures and options, this study constructs model-free measures of bond uncertainty and tail risks. The author mainly studies the behavior of bond risk measures around FOMC announcements and document three novel findings. First, bond uncertainty risk displays a rise and resolution similar to the stock VIX index, while tail risks don’t respond to announcements. Second, pre-FOMC announcement drift exists in terms of Treasury yields declining by 1 bps on the day before the announcement. Third, option-implied uncertainty cannot help explain the pre-FOMC announcement drift.