Volatility besets the markets
The first few months of 2000 were a period of heightened market volatility. The most volatile markets were the stock markets, particularly those trading technology stocks. However, the volatility also extended to the fixed income markets and major currencies. One source of volatility seemed to be uncertainty, engendered by data released during the period, about how much US and euro area monetary policy would tighten. Not only did the stock markets seem unusually susceptible to such uncertainty but order flows also appeared to exert an inordinate impact on prices. Moreover, participants in the US and European bond markets seemed to react more forcefully to macroeconomic news than usual, a response explained by a perception that monetary policy was entering an uncertain phase. At the same time, liquidity factors served to exaggerate the movements of US long yields.