The Battle for Yield: Bonds versus Equities

This value report compares the Dividend Yield of the various sectors of the S&P 500 with the 10-year Treasury Yield.

We used the Economatica system to examine the relationship between the 10 year bond yield and the S&P 500 dividend yield. With bond yields pushing upward over the recent months, the questions surrounding equity risk premium have taken the spotlight.

The data we’ve gathered reveals only 2 sectors in the S&P 500 have a dividend yield higher than the current 10-year bond yield. The sectors Funds, Trusts, and Other Financial Vehicles, and Utilities are posting dividend yields of 3.58% and 3.43%, or spreads of 74 bps and 59 bps respectively, over the current yield of the 10-year bond (2.84%).

Every other sector examined in the S&P 500 has a median dividend yield below the 10-year bond yield.

The chart below highlights the different points over the last 7 years in which the yield-gap has inverted. It furthermore highlights how the spread gap is currently widening, and should the 10 year bond yield continue to trend higher, this could put downward pressure on equity prices.

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