Article content

The Financial Post takes a weekly look at tools that will help you make your investment decisions. This week: the gap between the average dividend yield on a market benchmark and the yield on long-term government debt can offer a signal on when to buy stocks.

Current bond yields can tell equity investors a lot about the value of their investments, particularly when compared to the yields being generated by their holdings.

We apologize, but this video has failed to load.

tap here to see other videos from our team. Try refreshing your browser, or How to use bond yields to assess the value of stocks Back to video

But the rise and fall of bond yields over time can be just as important in figuring out what direction stocks may be heading.

There are several methods to assess the value of stocks using bond yields including the yield gap, a popular tool that can often indicate whether equity markets are overvalued or undervalued compared to government bonds.

The gap is calculated by taking the difference between the average dividend yield on a market benchmark and the yield on long-term government debt.