A Note on Forecasting Treasury Returns with GDP
16 Pages Posted: 21 Nov 2015
Date Written: November 19, 2015
Cieslak and Povala (2011) discovered that conditioning levels of interest rates on trend inflation helps to forecast bond returns. This note explores that theme using other measures of trend including trend GDP growth. I find that a model free de-trending of rates by trend GDP performs as well or better out of sample as the Cieslak and Povala return predicting factor. This is a result predicted by the classic fisher hypothesis.
Keywords: Bond risk premia, bond returns, Cieslak and Povala, returns
Suggested Citation: Suggested Citation