The 30-Year Bond Yield Falls Below the S&P 500 Dividend Yield

August 27, 2019 | Alternative Investments, News

The last time the 30-year bond yield fell this far was during the crisis of 2008-2009

The 30-year bond yield hit a decade-long low this week. Treasury bond yields have plunged because investors are bidding up bond prices in a rush to safety from macroeconomic fears such as trade wars and geopolitical turmoil.

When bond prices rise, yields fall.

Though the inversion makes a case for investing in stocks because the dividend yield is higher, one should understand that this phenomenon has occurred in a risk-off environment and investors may be looking to bonds for protecting capital, no matter how low the return.

Another factor could be international monies seeking the relatively higher return, and safety, in the United States.

Comparing bonds and the S&P500

According to Bespoke Investment Group, “two-thirds of the stocks in the S&P 500 yield more than the five-year, more than 62% yield more than the 10-year, and slightly more than half yield more than the 30-year,” referring to bond tenures.

But it’s worthwhile to look at bond prices. Over the past year,  TLT, a Treasury bond ETF, has risen a solid  25.9% since the fourth quarter of last year—pushing yields down to record lows—while stocks have fallen 1.5%.

Given how much bonds have outperformed stocks, it’s no surprise that their yields have fallen below that of the SP500.

With stocks still at multi-year highs, should investors buy them merely because they yield more than bonds?

Probably not, given the risk.

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