VALUATION PROCESS AND MARKET-EFFICIENCY FOR US TREASURY BONDS

This paper investigates the efficiency of the bond valuation process b y analyzing the effect of a call announcement on the US Treasury Bond market. The announcement provides an opportunity to analyze market eff iciency in response to unanticipated information in a market free of d efault risk and other confounding effects associated with corporate bo nds. The negative price effect is concentrated at the announcement. Af ter controlling for coupon and term, callable bonds are more negativel y affected than non-callable bonds, and the drop in returns is greater for shorter-term and higher-coupon callable bonds that are closer to maturity.