CREATES

The Yield Spread and Bond Return Predictability in Expansions and Recessions

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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.

OriginalsprogEngelsk
TidsskriftReview of Financial Studies
Vol/bind34
Nummer6
Sider (fra-til)2773-2812
Antal sider40
ISSN0893-9454
DOI
StatusUdgivet - jun. 2021

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