Effect of macroeconomic news announcement on bond market

The primary aim of this dissertation is to explain the factors effecting the behavior of the bond markets, with a specific focus on the elements affecting the local currency-denominated government bond yields in emerging markets. This analysis involves distinguishing the impact of both domestic and international factors and explaining the connections between foreign ownership and worldwide risk appetite. The first research question of this dissertation examines how foreign participation and global risk appetite affect the yields of government bonds with long-term maturity issued in local currencies within emerging markets. We use a novel approach by utilizing the panel two threshold variable model. Our analysis of panel data shows that foreign participation in the domestic government bond market leads to a decrease long-term government yield, and there is a threshold level in foreign participation. We also look at the global risk appetite interaction with the level of foreign participation. The analysis incorporates 19 emerging market countries, contributing to an understanding of the factors driving bond yields in these economies. This study concludes at the Federal Reserve's interest rate hike in 2015. The timing is pivotal, as it marks a shift in global financial conditions, offering a natural boundary for our analysis of emerging market economies' bond yields in relation to foreign ownership and debt levels. The second research question explores the impact of macroeconomic news and risk appetite on local currency government bond yields in Türkiye, utilizing an event study with data from 2005 to 2023. We explore the influence of unexpected macroeconomic news, monetary policy announcements, and risk events on the average and conditional volatility of Turkish bond returns. The research extends beyond the reaction of bond prices to unexpected news by exploring the dynamic response of the bond market to variations in risk appetite. The study reveals significant impacts of inflation and other domestic indicators on bond returns, a pattern consistent with mature markets, while also highlighting the intricate interplay between domestic economic conditions and global shifts. By incorporating a Risk State variable derived from the VIX index and considering local geopolitical events, the research provides an understanding of the dynamic bond market responses to varying risk perceptions and news events. This study contributes to the literature by utilizing a novel model to explain the determinants of domestic bond yields. The focus on is emerging markets, which is a segment that has been relatively ignored in past research. Also, this study explores the global and local news impact of government bond markets at a country level specifically focusing on the Turkish market. This part also addresses a gap in the existing literature by examining the effects on various bond maturities, offering insights into the entire yield curve's sensitivities in Türkiye. This analysis is facilitated by utilizing a comprehensive dataset consisting of economic forecast survey data. Overall, this comprehensive approach provides insights for investors, policymakers, and academics interested in the complex dynamics of emerging market bonds and the various domestic and international factors shaping their yields. Keywords: Emerging Market, Sovereign Bond Yield, Local Currency Bond Markets, Foreign Ownership Threshold, Global Risk Aversion, News Impact