This study proposes a new predictor constructed under the state-preference asset pricing framework to forecast the U.S. monthly equity premium. The index, termed as the government bond volatility index or GBVX, reflects the Treasury implied volatility. The innovation in the GBVX delivers statistically and economically significant in-sample and out-of-sample predictive results over the recent 2000–2015 sample period. It yields a sizable increase in terminal wealth growth, Sharpe ratio, and utility gains. In addition, the predictive ability of the innovation in the GBVX is comparable to, and in a majority of cases, surpasses those of conventional predictors commonly used in the literature, as well as a range of historical and other implied volatility indices. The strong predictive ability of the innovation in the GBVX stems from its anticipation of cash flow news.