Review of Quantitative Finance and Accounting, 16, 345–368, 2001  C 2001 Kluwer Academic Publishers. Manufactured in The Netherlands. The Responses of Interest Rate Spreads to Information Releases RAJ AGGARWAL Firestone Chair and Professor of Finance, Kent State University, Kent, OH 44242 MUKESH CHAUDHRY Associate Professor of Finance, Department of Economics and Finance, College of Business, Marshall University, Huntington, West Virginia 25755 ROHAN CHRISTIE-DAVID Assistant Professor of Finance, Department of Economics, Finance, and International Business, College of Business Administration, University of Southern Mississippi, Hattiesburg, MS 39406, Fax: 601-266-4639 E-mail: Rohan.Christie-David@usm.edu TIMOTHY W. KOCH South Carolina Bankers Association Chair of Banking and Professor of Finance, Darla Moore School of Business, University of South Carolina, Columbia, SC 29208 Abstract. This study examines the responses of three popular futures interest-rate spreads—the MOB (Munici- pals over Treasury bonds), the NOB (Notes over Treasury bonds), and the TED (Treasury Bills over Eurodollars) to macroeconomic news. We find responses to differ across the three spreads. The most pronounced responses are displayed by the MOB, followed by the NOB and the TED. We also find that the spreads take time to adjust to news in the announcements. Key words: spreads, macroeconomic news, interest rates JEL Classification: G13, G14 I. Introduction The incorporation of macroeconomic news in asset prices is of considerable interest to market participants. Prior research details the impact of macroeconomic news on intraday prices and volatilities for a wide range of instruments (see, e.g., Harvey and Huang, 1991; Ederington and Lee, 1993, 1995). Ederington and Lee (1993), suggest that most of the price adjustment in futures markets following macroeconomic news announcements takes place within the first minute of the release. However, higher volatility persists for approximately fifteen minutes and remains slightly elevated for several hours. Similar effects are also found in equity markets. For instance, Jain (1988) finds that equity prices are sensitive to the release of the CPI and money supply.