When the US sells $13bn of 30-year bonds on Wednesday it will do so with market yields near their lowest levels since January 2009.

Benchmark 10-year yields are providing the most miserly pay-outs in several decades. The lower yields go, the closer the time comes when investors will shift their perception of risk/reward regarding US paper.

At some stage, alternatives will become attractive again.

The chart shows the dividend yield on the S&P 500 minus the US 10-year bond yield.

Yield on S&P 500 less yield on 10-year Treasury

This is a clumsy comparison: equity pay-outs reflect inflation; bond yields are nominal. But many like to use such calculations as a guide for where value may be found.

The last time the gauge went positive was in late 2008, the time of Lehman’s demise. But equities didn’t trough until March 2009 so the chart’s recent move higher does not necessarily indicate an imminent rebound for shares.

After all, the upcoming third-quarter earnings season may show dividend pay-outs under pressure as the economy struggles.

But it does suggest traders could at least prepare for a relative change in the fortunes of bonds and shares.


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