Bond futures and order imbalance Examining international linkages

Abstract

Order imbalance methodology is utilized to examine the linkbetween trading activity and returns in the six most liquid interna-tional bond futures markets. Order imbalances are strongly relatedto contemporaneous returns, in the expected direction (i.e. excessbuy (sell) orders push down (up) yields), even after controlling foraggregate market volume. There is evidence of contrarian investorbehaviour following an increase in yields, but continuation of orderimbalances when yields are falling (the prices of bond futures arerising). International bond futures markets are strongly intertwinedwith the US market having a strong influence on the returns andorder-flow across all countries; this is likely an indication of thespill-over effect of US macroeconomic data.