Corporate Bond Risk and Real Activity: An Empirical Analysis of Yield Spreads and Their Systematic Components
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
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 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.
Series:
Working Paper No. 2001/158
Subject:
Bonds Corporate bonds Financial institutions Financial services Industrial production Production Securities Yield curve
English
Publication Date:
October 1, 2001
ISBN/ISSN:
9781451857580/1018-5941
Stock No:
WPIEA1582001
Pages:
62
Please address any questions about this title to publications@imf.org