Submitted by Taps Coogan on the 14th of April 2020 to The Sounding Line.

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Over the past decade of ever lower interest rates, it has become a tongue-in-cheek critique of markets to say that people are buying bonds for the capital gains and buying stocks for the income, inverting the normal reasons why people buy each.

Well, however sarcastic such a statement was in recent years, it is now quite literal. The recent crash in the stock market has pushed the dividend yield on the S&P 500 up to 2.41% at the end of March (2.16% as of April 13th). Meanwhile, the 10-Year treasury yield fell to just 0.68% at the end of March and is currently sitting at just 0.76% as of April 13th. In other words, not only is the S&P 500 yield now higher than the 10-Year yield, the spread between the two is the widest it has been since 1955.

With yields on the entire Treasury yield curve near the zero bound, and with stocks now solidly out ‘yielding’ bonds by the most since 1955 and by roughly the average amount from 1871 through 1955, however overvalued stocks may still be, bonds appear to be wildly more overvalued. Of course, stock dividends are going to be slashed in the coming months as companies try to shore up their balance-sheets. However, they are likely to remain above the ‘zero-bound’ 10-Year for some time.

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