From Morningstar:

The article discusses the historical relationship between bond yields and stock dividend yields. It explains that traditionally, stock dividend yields exceeded government bond yields due to the higher risk of stocks. However, today’s low bond yields and stagnant stock dividend yields make bonds less attractive than equities.

The article discusses how the stock market evolved and how the relationship between stock dividend yields and government bond yields has shifted over time. It explains that the low dividend yields have made stocks less attractive than bonds, challenging the traditional belief that stocks should offer higher yields than government bonds.

The article discusses how bond yields and stock earnings yields should be compared and offers a thorough analysis of the historical data from January 1962-January 2024. It explains that despite the recent increase in Treasury yields, bonds are not yet deemed attractive compared to equities. It goes on to examine how modern investors value these two asset classes post-2008 anomaly.

The article talks about the relative yield on 10-year Treasuries reverting to its historical norm and the importance of absolute yield, providing a thorough analysis of the historic discrepancy between bond yields and stock earnings yields. It discusses how the low absolute yield of Treasury notes affects their attractiveness compared to equities.

The article concludes with the author’s opinion that stocks remain the better investment compared to bonds, even if Treasury yields were to reach 5%. The author explains this conclusion is based on the assumption that corporate earnings will continue to increase under the likeliest economic conditions.



Read more: Bonds Are Still Too Expensive