Yield curve sensitivity to investor positioning around economic shocks

Using granular, daily EMIR Trade Repository data on short sterling futures, we investigate the interaction of speculative trading and macroeconomic shocks on UK yield curve pricing.

Abstract

Speculative trading activity may either support efficient market functioning or introduce price distortions. Using granular, daily EMIR Trade Repository data on short sterling futures, we investigate the interaction of speculative trading and macroeconomic shocks on UK yield curve pricing over a 16-month sample period from 2018 to 2020. Our results are largely consistent with efficient market functioning throughout the period, although we find some evidence that short speculative positions amplified yield curve moves in response to Brexit shocks, while long speculative positions had a dampening effect.

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