IMF

What Corporate Bonds Tell Us about Real Activity in the United States

Email address: iivaschenko@imf.org

Keywords: Investment grade bonds, corporate spreads, term structure, business cycle, forecasting, GMM estimation, United States

JEL Classifications: E32, E37, E43, E44

Abstract:
This paper studies whether the information contained in investment grade bonds can be used to predict real activity in the United States. The empirical findings indicate that both the yield spread of investment-grade corporate bonds to Treasury securities and the term structure of corporate bonds are useful predictors of real activity. Furthermore, the yield spread of AAA-rated bonds to Treasury securities seem to capture systemic risk related to the economic cycle, while the yield spread of lower-rated investment grade bonds to AAA-rated bonds may capture the idiosyncratic risk associated with each credit class.

PDF file of paper: ivaschenko.pdf

Session: Empirical Finance

Time: Sunday, 8 July, 2:15pm - 3:45pm

Room: B