Out-of-sample bond risk premium predictions: A global common factor

•A global Cochrane–Piazzesi factor predicts international bond risk premia.•The global factor delivers systematic economic value.•The global factor is related to international economic activity.

This paper investigates the out-of-sample predictability of international bond risk premia. We endogenously construct a global common Cochrane and Piazzesi (2005) factor. We find that the global factor strongly predicts international bond risk premia and delivers economically significant gains relative to the historical average. The forecasting power of the global factor is above and beyond the predictive power contained in country-specific factors. As predicted by economic theories, bond return forecasts appear countercyclical. We also find that the global factor is related to international economic activity.