The Term Structure of the Excess Bond Premium: Measures and Implications


  • Simon Gilchrist
    New York University and the
    National Bureau of Economic Research
    •                          
  • Bin Wei
    Federal Reserve Bank of Atlanta


  • Vivian Z. Yue
    Emory University,
    the Federal Reserve Bank of Atlanta,
    the National Bureau of Economic Research,
    and the Center for Economic and Policy Research
    •         
  • Egon Zakrajšek
    The Bank of International Settlements and
    the Center for Economic and Policy Research




Full text Adobe PDF file format :: Excess bond premium data Microsoft Excel file

Summary:

In this article, we construct daily aggregate as well as short-, medium-, and long-term "excess bond premium" (EBP) measures using a widely available corporate bond database (known as "TRACE"). The novel EBP measures we construct provide an important gauge of strains in the financial sector at different horizons. We find that the short-term EBP measure increased more dramatically at the peaks of the COVID-19 pandemic and the 2007–09 global financial crisis, but the pattern was reversed around the interest rate liftoff at the end of 2015.

Key finding:

  1. The authors find that the short-term EBP measure increased more dramatically at the peaks of the COVID-19 pandemic and the 2007–09 global financial crisis.
  2. The pattern was reversed around the interest rate liftoff in the end of 2015.

Center affiliation: Center for Quantitative Economic Research

JEL classification: E44, E58, G12

Key words: excess bond premium, term structure, TRACE, COVID-19

https://doi.org/10.29338/ph2021-12

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