Do corporate credit spreads predict the real economy?

Abstract

We evaluate whether corporate credit-spreads measures contain predictive information about the real U.S. economy in a comprehensive specification that includes financial sectors’ profitability, stock and bond market. We find that corporate credit spreads contain no predictive information about U.S. real GDP or consumption and that corporate credit spreads have minimal information about forthcoming recessions. In comparison, the financial sector’s profitability, the Treasury bond and stock market variables contain leading information about recessions, consumption and real GDP.