A milestone, of sorts, was seen in US financial markets last week.
As this chart from the Institute of International Finance (IIF) reveals, US 2-year government bond yields have now risen above the forward dividend yield for US stocks for the first time since 2008.
In contrast, in Japan and the euro area where monetary policy settings are considerably more accommodative, stocks continue to yield significantly higher than shorter-dated bonds.
“Growing concerns about the expected increase in bond supply gave a further boost last week to US Treasury yields,” says the IIF.
However, higher supply could well be met with higher demand given that US short-term bond yields now exceed the dividend yield of domestic stocks for the first time since 2008.
“In contrast, bonds in the Euro Area and Japan remain much less attractive on this metric,” it adds.
The willingness from investors to pile into US stocks at record levels likely reflects not only yields but also expectations for further price appreciation for stocks.
Still, with shorter-dated bonds now yielding more than stocks, it’s something to look out for in the period ahead, especially should the Fed continue to lift rates as many in the markets expect.