Excess Bond Premium

## What this measures

The part of US corporate bond spreads that expected default does not explain: what investors demand, on top of the default risk, to hold corporate credit. A read of risk appetite in credit markets.

## Why it matters

A rising premium has preceded most US recessions since the 1970s. It tightens financing for the firms that depend on bond markets before it shows up anywhere else.

## How to read it

Percentage points. Near zero is normal. Above about 0.5 signals stress; the premium rose above 3 in late 2008.

## What it does not say

It says nothing about any single company, and it can stay low while leverage builds.

## Source

Federal Reserve Board staff, updating Gilchrist & Zakrajšek (2012), "Credit Spreads and Business Cycle Fluctuations," *American Economic Review* 102(4). A US government work, public domain.