Macroeconomic Cycles and Bond Return Predictability

Stefano Soccorsi and Katerina Tsakou

No 441200688, Working Papers from Lancaster University Management School, Economics Department

Abstract: We study the link between the macroeconomy and expected bond returns by dissecting common macroeconomic cycles of different lengths. Two unobservable predictors generate sizeable economic value for investors: an inflation factor maximizing macroeconomic cycles of at least 8 years, and a term spread factor maximizing cycles of 1 to 3 years. The inflation factor captures the stance of monetary policy as return premia increase when the policy rule becomes "hawkish". The term spread factor reflects investors' perception of business-cycle risk.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:lan:wpaper:441200688

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