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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
|---|
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
|
0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Are Rising Bond Yields Good Or Bad For Shares? |
The Wall Street Journal - Jan. 6, 2011 - by Allen Mattich
The bond market’s implications for equities is generating plenty of heat. But not a lot of light.
Does the rise in longer-dated yields over recent months reflect expectations that the economy, and therefore inflation, will grow solidly from here on in? Or is there another possible cause? And to what extent is a rise in yields negative for an economy that’s already struggling with massive private and public sector debt loads?
History doesn’t give any clear answers on the relationship between yields and equity performance.
Equity analysts have in the past put considerable store in the so-called “Fed model” which values U.S. equities on the basis of long-dated Treasury bond yields. In a nutshell, the S&P 500 earnings yield should track the yield on 10-year Treasuries. This model was used to explain the long bull run, starting in the early 1980s, in both equity and bond markets.
The theory is that Treasury bonds represent a risk free rate of return, which ought to be tracked by a broadly diversified portfolio of equities, plus a modest risk premium. On that basis, equity investors might be worried by a rise in bond yields, all other things being equal.
But they’re not equal. Equity market earnings have rebounded dramatically since the worst of the credit crunch and strategists are looking for continued strength over this year. So any downward pressure on equities from rising bond yields are being offset by bullishness about profits.
Not everyone is enthusiastic about the Fed model. Clifford Asness, a hedge fund manager, picked apart the relationship in an important paper from 2003, “Fight the Fed Model.”
And, indeed, although bond and equity yields have tracked each other for long periods, there have also been stretches when they’ve moved in opposite directions. Rising bond yields have been met with rising equity prices (falling equity yields). Here, the rise in bond yields is read as a predictor of economic growth and inflation. And solid growth and moderate inflation have tended to be seen as favorable for share prices.
Only when inflation expectations start to raise concerns about aggressive central bank policy responses do they then start to have a bearish impact on shares. But this isn’t likely to be the case now. The Fed is committed to a lower for longer policy. And the very large amount of excess capacity in the U.S. economy–evident in a near 10% unemployment rate–argues against any near-term rise in inflation, which should keep bond yields under control.
But that’s not the only reason bond yields go up. If investors started to worry about being paid back, in other words that the government would look to default on its obligations, bonds would tend to sell off, in other words pushing up yields.
For the complete commentary.
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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