Do Credit Spreads on Corporate Bonds Forecast Real Activity in Russia

Identifying the upcoming economic cyclical declined by analyzing the credit spreads is widely used technique. Research is focused on the corporate credit spread well-known as GZ spread in terms of its predictive ability for Russian economic activity. To examine this methodology, broad range of corporate debt securities is used to construct credit spread directly from prices and yields of bonds on secondary market. This study confirms the fact that various macroeconomic measures could be assessed via two components of GZ credit spread – compensation for expected default and excess bond premium. Moreover, research includes parameters that are specific for Russian economics such as currency exchange rate and oil prices. Finally, it has been shown that excess bond premium is significant indicator which reflects investor’s expectations of future economic conditions and growth.