This paper investigates one-year holding period risk premia of U.S. corporate and Treasury bonds. Using excess return regressions, two priced risk factors are derived from yield and macroeconomic data: A priced term risk factor and a priced credit risk factor explain half of the pre-crisis variation in one-year corporate and Treasury excess returns. Prior to the onset of the financial crisis, the information of the term risk factor is not represented by major yield characteristics but is a hidden risk factor whereas the credit risk factor is not hidden. During the crisis a structural break occures, the explanatory power for all models and the effect of the hidden factor shrinks. The regression results are usefull for the specification of affine credit term structure models: The two-factor representation of the risk premium suggests restrictions on the market price of risk processes and an additional pricing factor to capture the hidden property of term risk.
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