Macroeconomic announcements and implied volatilities in swaption markets

Some of the sharpest movements in the major swap markets take place during days of US economic data releases. These yield movements induce spikes in volatilities during those days. Swaption prices adjust to reflect the spikes: the volatilities implied by these prices tend to fall once the volatility spike induced by an announcement has passed. For a given type of announcement, the decline in implied volatility is consistent with the average size of the spike in realised volatilities.

JEL classification: G10, G14.