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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.

Original languageEnglish
JournalReview of Financial Studies
Volume34
Issue6
Pages (from-to)2773-2812
Number of pages40
ISSN0893-9454
DOIs
Publication statusPublished - Jun 2021

    Research areas

  • EXPECTED RETURNS, RATES, RISK PREMIUMS, SAMPLE, SHIFTS, TERM STRUCTURE

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