Economic Risk Premia in the Fixed Income Markets: The Intra-Day Evidence

Abstract

We use high-frequency data to precisely estimate bond price reactions to macroeconomic announcements and the associated compensation for macro risks. We find evidence of a single factor summarizing the reaction of bond prices to different announcements. Prior to the financial crisis, the factor risk premium is substantial, significant, and mainly earned before announcement releases. After the crisis, the stock-bond covariance becomes negative and the pre-announcement factor risk premium becomes insignificant. Our empirical results are consistent with information leakages that take place ahead of announcement releases, and with the implications of a long-run risks model of bond risk premia.

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