Bond Return Predictability: Evidence from 25 OECD Countries

Abstract In this paper, we test for bond excess return predictability in 25 Organisation for Economic Co-operation and Development countries, using a set of 12 predictor variables, including macroeconomic, financial, and commodity-based indicators. The novelty of our approach is that we employ both time-series and panel data models that accommodate key data features, namely, persistency, endogeneity, heteroscedasticity, and cross-sectional dependence. We note two key findings. The first is that commodity variables, both oil spot and futures prices, and the world commodity price index predict bond excess returns. Our second finding confirms that macroeconomic variables (the term spread and T-bill yield) are successful predictors of bond excess returns.