The Maturity of Debt Issues and Predictable Variation in Bond Returns
Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)
Robin M. Greenwood
Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)
NYU Stern School of Business; National Bureau of Economic Research (NBER)
Journal of Financial Economics (JFE), Vol. 70, pp. 261-291, 2003
NYU Working Paper No. FIN-11-028
The maturity of new debt issues predicts excess bond returns. When the share of long-term debt issues in total debt issues is high, future excess bond returns are low. This predictive power comes in two parts. First, inflation, the real short-term rate, and the term spread predict excess bond returns. Second, these same variables explain the long-term share, and together account for much of its own ability to predict excess bond returns. The results are consistent with survey evidence that firms use debt market conditions in an effort to determine the lowest-cost maturity at which to borrow.
Number of Pages in PDF File: 31Accepted Paper Series
Date posted: December 15, 2011
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