This paper investigates the time-varying corporate bond index returns in a multi-factor smooth transition regression model. We find that expected index returns vary between weak and strong economic regimes, where the transition from one regime to the other is governed by the 3-quartered growth of industrial production. Weak economic regimes are characterized by low growth of industrial production, vice versa for strong economic regimes. Further, risk factor sensitivities are generally more negative in strong economic regimes than in weak regimes, implying that index returns are low when economic conditions are good and high when economic conditions are poor.
Chen, X., & Maringer, D. (2011). Detecting time-variation in corporate bond index returns: a smooth transition regression model. Journal of Banking and Finance, 35(1), 95-103. https://doi.org/10.1016/j.jbankfin.2010.07.023