Profit Opportunities in the U.S. Treasury Market When the Market Is Under Stress

Abstract

The goal of this article is to examine whether profit opportunities exist after days with abnormal volume in the U.S. Treasury market when the market is under stress and market makers are reluctant to take risks. The evidence from the trading strategy used implies that morning and overnight returns are positively related and that profits are positive and highly significantly different from zero following days with abnormal volume. This article finds that when the two-year notes’ volume is used in the trading strategy of other securities, profits increase with maturity and improve for all maturities.

TOPICS: Fixed income and structured finance, statistical methods