Corporate Bond Risk and Real Activity An Empirical Analysis of Yield Spreads and Their Systematic Components |
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| Author:
| Ivaschenko, Iryna V.
Chan-Lau, Jorge A. |
| ISBN: | 978-1-4518-5758-0 |
| Publication Date: | Oct 2001 |
| Publisher: | International Monetary Fund
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| Book Format: | Paperback |
| List Price: | AUD $23.95 |
Book Description:
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This paper finds that the yield spread of investment-grade bonds relative to Treasuries, a proxy of default risk, predicts marginal changes in industrial production in the United States up to 12 months in the future, even upon controlling for a commonly used predictor such as the commercial paper spread. The paper also finds that systematic risk factors associated with the yield spread of investment-grade bonds to a variety of risk-free benchmarks - Treasuries, agency bonds, and...
More DescriptionThis paper finds that the yield spread of investment-grade bonds relative to Treasuries, a proxy of default risk, predicts marginal changes in industrial production in the United States up to 12 months in the future, even upon controlling for a commonly used predictor such as the commercial paper spread. The paper also finds that systematic risk factors associated with the yield spread of investment-grade bonds to a variety of risk-free benchmarks - Treasuries, agency bonds, and AAA-rated bonds - have significant predictive content for future growth rate of industrial production at 3 to 18 months forecasting horizon, both in- and out-of-sample. Finally, a regime-switching estimation shows that the systematic risk component is also able to capture "industrial production business cycle" well.