The Yield Spread and Bond Return Predictability in Expansions and Recessions

The Yield Spread and Bond Return Predictability in Expansions and Recessions

Abstract This paper uncovers that expected excess bond returns display a positive correlation with the slope of the yield curve (i.e., yield spread) in expansions but a negative correlation in recessions. We use a macro-finance term structure model with different market prices of risk in expansions...

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Veröffentlicht in:The Review of financial studies 2021-06, Vol.34 (6), p.2773-2812
Hauptverfasser: Andreasen, Martin M, Engsted, Tom, Møller, Stig V, Sander, Magnus
Format: Artikel
Sprache:eng
Schlagworte:
Business & Economics
Business, Finance
Economics
Kapitaleinkommen
Konjunktur
Prognoseverfahren
Social Sciences
USA
Zinsstruktur
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Beschreibung
Zusammenfassung:Abstract This paper uncovers that expected excess bond returns display a positive correlation with the slope of the yield curve (i.e., yield spread) in expansions but a negative correlation in recessions. We use a macro-finance term structure model with different market prices of risk in expansions and recessions to show that a very accommodating monetary policy in recessions is a key driver of this switch in return predictability.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhaa107