Abstract
This paper provides new evidence on bond risk premia by conditioning the classic Campbell-Shiller regressions on the business cycle. In expansions, we find mostly positive intercepts and negative slopes, but the results are completely reversed in recessions with negative intercepts and positive slopes. The pattern in these coefficients is explained by a term structure model with business cycle dependent loadings in the market price of risk. This model also predicts realized excess returns with the right sign during expansions and recessions, whereas the Gaussian ATSM is unable to explain realized excess returns on medium- and long-term bonds during recessions.An Online Appendix is available at: https://ssrn.com/abstract=2857802
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