Employing a large number of real and financial indicators, we use Bayesian Model Averaging (BMA) to forecast real-time measures of economic activity. Importantly, the predictor set includes option-adjusted credit spread indexes based on bond portfolios sorted by maturity and credit risk as...

Corporate bond spreads and the slope of the Treasury yield curve (that is, the term spread) are two financial indicators that are especially informative about the likelihood of an economic downturn over a medium-term horizon