Bond Yields Are Now Higher than Stock Yields

Since the election, the long end of the yield curve has sold off. That means long-term interest rates have risen, so much so that bonds now yield higher than stocks.

This isn’t necessarily bad for stocks.

This shift would appear to be negative for stocks, but some say there is a substantial silver lining. After all, bond yields do appear to be rising on short-term growth expectations, and if the economy manages to pick up, that would clearly be bullish for equities.

“It’s not a valuation story, it’s an economically optimistic story,” Eddy Elfenbein, editor of the Crossing Wall Street blog, told CNBC on Friday. And even when it comes to dividends alone, “there’s probably a good reason to think dividends will grow into 2017 and 2018.”

In other words, the old, odd situation gave stocks a reason to rise, but now that the situation has been reversed, there is an even meatier catalyst for a continued move higher.

Here’s the yield of the S&P 500 in red along with the 10-year yield in blue.

Posted by Eddy Elfenbein on November 14th, 2016 at 10:15 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.