Now it is a different landscape.
Bonds are more reliable than last year because yields are already high. Even if they continue to rise, there is now a soft cushion and any price declines should be offset, and then some, by the income that bonds generate. Bond funds and exchange-traded funds are also unlikely to see declines in last year’s range. “Bond math tells us it’s not going to happen,” Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, said in an interview.
With the federal funds rate above 5 percent, the rich yield has spilled over into money market funds and Treasury bills with maturities of up to one year. Now that the debt ceiling battle is over and the Treasury is issuing a huge amount of new debt, we can say once again that those investments are safe. You can’t say that about tech stocks.
There are many ways to compare the valuation of the stock and bond markets.
It’s a bit shaky.
Basically, the higher the bond yields and the lower the equity income, the better the bonds stack up, and vice versa. A long-standing measure is comparing the trailing 12-month earnings yield of the S&P 500 to the yield of government bonds. Right now, bonds are doing well in this horse race.
S&P’s earnings yield is 4.34 percent, according to FactSet, making it lower and in some ways less attractive than the ultra-secure yields of more than 5 percent on one-year government bonds. Investment grade corporate bonds are also attractive. Yields on 10-year government bonds are lower, well below 4 percent, making them less attractive.
What this all means is that the TINA acronym no longer applies: there are currently viable alternatives to the stock market.
