The Cross-Section of Global Corporate Bond Returns

Abstract

Forward rates contain reliable information about cross-sectional differences in expected global corporate bond returns. Many alternative bond-level and issuer-level variables, by contrast, are not reliably linked to expected bond returns or provide information about expected bond returns only through their correlation with forward rates. An exception is the issuer's prior short-term equity return. Short-term equity returns are negatively related to subsequent yield changes for the issuer's bonds in cross-sectional regressions, consistent with our finding that short-term equity returns are positively related to subsequent differences in bond returns even after controlling for forward rates. While the information in forward rates about differences in corporate bond returns tends to last for over a year, the information in short-term equity returns decays fast.

Keywords: global corporate bonds, factor investing, fixed income, forward rates

JEL Classification: G11, G12