Daily Archives: May 5, 2017 at 11:26 am EDT

US Payrolls Rebound In April, But 1-Year Trend Still Looks Wobbly

The pace of job creation picked up sharply in April, the Labor Department reports. The solid increase suggests that the weak gain in March, which was revised down, was an anomaly. That’s an encouraging sign, and for the moment it revives the view that the US labor market is still expanding at a healthy if unspectacular rate. Nonetheless, the latest numbers also reaffirm that the year-over-year comparison is still signaling a decelerating trend, which has been playing out over the past two years.
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Research Review | 5 May 2017 | Forecasting

Credit Spreads, Daily Business Cycle, and Corporate Bond Returns Predictability
Alexey Ivashchenko (University of Lausanne)
May 4, 2017
The part of credit spread that is not explained by corporate credit risk forecasts future economic activity. I show that the link with aggregate business risk and bond liquidity risk explains this finding. Once I project spreads on these two risk factors, which are readily measurable with the daily frequency, in addition to corporate credit risk, the forecasting power of the residual spread reduces substantially for some macro variables and disappears entirely for the others. Such residual, however, turns out to be an out-of-sample forecast of corporate bond market returns. An investment strategy based on such forecasts delivers risk-adjusted returns 50% higher than the corporate bond market.
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