The Yield Curve versus the Corporate Spread: An Evaluation of the Predictive Nature of Both

Open Access
Author:
Meckes, Amy Aileen
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Russell Paul Chuderewicz, Thesis Supervisor
  • David Shapiro, Honors Advisor
Keywords:
  • yield curve
  • corporate spread
Abstract:
This paper compares the relationship between the slope of the yield curve and a number of economic variables that include unemployment, stock prices, gold, industrial production and inflation to the relationship between the corporate spread and the same variables. Empirical results, using vector autoregressions and impulse response functions, conclude that the corporate spread contains useful predictive information. However, the yield curve acts in response to Federal Reserve Bank actions and reactions. I conclude that due to the great moderation and the glut of savings, the corporate bond spread is a more accurate forecaster of future economic climates than the more traditionally scrutinized yield curve slope.