The ‘Yield gap’ is the gap between the S&P 500 dividend yield and the 2yr U.S. Treasury bond. Both yields are short-term where the gap indicates the difference in yields between ‘risk-free’ and risky assets. Based on the risk-return tradeoff one would expect higher dividend yields, in comparison to the government bonds yields, to offset the risk associated with stocks.
For the past decennia, investors have flocked to the stock market to seek higher yields, as government bonds reached historical low returns. Now, as treasury yields exceed the S&P 500 dividend yield, there is concern that investors will switch from stocks to bonds, wielding in a bearish period on the stock market.
More information? Please contact Jeroen Weimer.
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