By Musa Amadeus, Rajeev Bhargava, Tim Graf, Michael Guidi, Michael Metcalfe, Gideon Ozik, and Ronnie Sadka
This paper examines the ramifications of central bank monetary tones on future changes in yields. We observe that monetary tones in media coverage of central bank policies contain predictive information pertaining to future weekly fluctuations in yields. We find that bottom-to-top decile fluctuations in Federal Reserve monetary tones precipitate a roughly 5.58 basis point 1-week increase in Treasury 10-year yields. A strategy designed to capture these weekly fluctuations would earn roughly 0.56% weekly or roughly 29% in annualized terms. We observe that these relations manifest across various prediction horizons and yield maturities, are more pronounced between monetary policy meetings, and are robust to controlling for autocorrelation structures in yields and spreads. We also find that these relations are present within distinct geographic regions.