We show that the difference between the natural rate of interest and the current level of monetary policy stance, which we label Convergence Gap (CG), contains information that is valuable for bond predictability. Adding CG in forecasting regressions of bond excess returns significantly raises...

Using different econometric models, Diebold and Li (J Econom 130:337-364, 2006) addressed the practical problem of forecasting the yield curve by predicting the factors level, slope and curvature in the Nelson-Siegel framework. This paper has two main aims: on the one hand, to investigate the...

This paper documents a significantly stronger relationship between the slope of the yield curve and future excess bond returns on Treasuries from 2008-2015 than before 2008. This new predictability result is not matched by the standard shadow rate model with Gaussian factor dynamics, but...

I provide evidence that risks in macroeconomic fundamentals contain valuable information about bond risk premia. I extract factors from a set of quantile-based risk measures estimated for US macroeconomic variables and document that they account for up to 31% of the variation in excess bond...

I provide evidence on the existence of unspanned macro risk. I investigate the usefulness of unspanned macro information for forecasting bond risk premia in a macro-finance term structure model from the perspective of a bond investor. I account for model uncertainty by combining forecasts with...

This paper provides empirical evidence on predictable shifts in the degree of bond return predictability. Bond returns are predictable in high (low) economic activity (uncertainty) states, which suggests that the expectations hypothesis of the term structure holds periodically. These...

This paper studies whether the evident statistical predictability of bond risk premia translates into economic gains for investors. We propose a novel estimation strategy for a ne term structure models that jointly fits yields and bond excess returns, thereby capturing predictive information...

This paper studies variance risk premiums in the Treasury market. We first develop a theory to price variance swaps and show that the realized variance can be perfectly replicated by a static position in Treasury futures options and a dynamic position in the underlying. Pricing and hedging is...

This paper studies the predictability of bond risk premia by means of expectations to future business conditions using survey forecasts from the Survey of Professional Forecasters. We show that expected business conditions consistently affect excess bond returns and that the inclusion of...

We show that machine learning methods, in particular extreme trees and neural networks (NNs), provide strong statistical evidence in favor of bond return predictability. NN forecasts based on macroeconomic and yield information translate into economic gains that are larger than those obtained...