The Term Structure of the Excess Bond Premium: Measures and Implications

Gilchrist, Simon; Wei, Bin; Yue, Vivian Z.; Zakrajšek, Egon

doi:10.29338/ph2021-12

Discussion Paper

The Term Structure of the Excess Bond Premium: Measures and Implications

Abstract: In this article, we construct daily aggregate as well as short-, medium-, and long-term "excess bond premium" (EBP) measures using a widely available corporate bond database (known as "TRACE"). The novel EBP measures we construct provide an important gauge of strains in the financial sector at different horizons. We find that the short-term EBP measure increased more dramatically at the peaks of the COVID-19 pandemic and the 2007–09 global financial crisis, but the pattern was reversed around the interest rate liftoff at the end of 2015.

Keywords: excess bond premium; term structures; TRACE; COVID-19;

JEL Classification: E44; E58; G12;

https://doi.org/10.29338/ph2021-12