Hello and welcome back to another paid post!
Dickerson and Nozawa report that most of the credit return in US corporate bonds is earned in the first five trading days of each calendar month, with the rest of the month averaging close to zero. The claim is strong, the sample ends in January 2023, and the authors state that the mechanism behind it remains an open puzzle. This post reproduces their result from scratch, pushes it forward through September 2026, and reports what the extension can and cannot tell us.
Let’s dive right in.
What the paper claims
The paper documents that corporate bond credit returns are concentrated in a narrow window at the start of each month. Over the sample period from February 1997 to January 2023, the first five trading days of each month account for 73 percent of individual bonds’ credit returns, 83 percent of the US corporate bond market credit premium, and nearly 80 percent of the monthly credit premium in high-yield bonds. The average corporate bond earns 11.8 of its 16.1 basis points of monthly credit return in that window, with the balance of the month contributing a statistically insignificant remainder.
The authors measure credit returns as corporate bond returns in excess of duration-matched Treasury returns, following van Binsbergen, Nozawa, and Schwert (2025). The pattern is specific to that measurement: using corporate bond returns in excess of T-bill rates, the first-five-day premium is negative and insignificant. The premium arises because Treasury returns tend to underperform corporate bonds during the first five days of the month.
What makes the paper notable is less the pattern itself than the mechanism search that follows it. The authors test eleven candidate explanations drawn from the existing calendar-effects literature: month-end cash needs, passive reinvestment, customer buying pressure, index reconstitution, primary-market issuance, the coupon payment cycle, the turn-of-the-quarter effect, scheduled macroeconomic news announcements, the FOMC cycle, prior-month stock returns, and prior-month VIX. None fully explains the premium at the individual-bond, market-portfolio, and factor levels simultaneously. Customer buying pressure and prior-month VIX account for roughly half of the bond-level premium with wide confidence intervals; everything else fails. The paper closes the mechanism section by stating that why compensation for credit risk follows this schedule remains an open puzzle.
Their proposed framing is instead a bond-market version of the Savor and Wilson (2014) macroeconomic-announcement story: the bond CAPM explains the cross-section of average factor returns well, but only over the first five days of the month. The first-five-day market credit premium prices a factor zoo of 103 long-short bond portfolios with a cross-sectional R-squared of 76 percent, versus 6 percent using full-month returns. In that reading, there is one anomaly in the market portfolio that lives in a specific calendar window, and the rest of the factor zoo inherits it.