It’s a different landscape now.
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 more than offset by the income that bonds are generating. Bond mutual funds and exchange-traded funds are also not expected to see declines on the scale of last year. “Bond bills tell us that’s not going to happen,” Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, said in an interview.
With the policy rate above 5 percent, high yields have spread to money market funds and government bonds with maturities of up to one year. With the debt ceiling battle behind us and the Treasury issuing a large amount of new debt, it is once again fair to say that these investments are safe. You can’t say that about tech stocks.
There are many ways to compare stock and bond market valuations.
It’s a little strange.
Basically, the higher the bond yields and the lower the stock returns, the better bonds perform and vice versa. A long-standing metric is to compare the trailing 12-month earnings yield of the S&P 500 to government bond yields. For now, bonds are doing well in this horse race.
The S&P earnings yield, according to FactSet, is 4.34 percent, lower and in some ways less attractive than the ultra-safe 1-year Treasury yields of over 5 percent. Investment-grade corporate bonds are also attractive. 10-year Treasury yields are lower, well below 4 percent, making them less attractive.
All of this means that the acronym TINA no longer applies: there are currently viable alternatives to the stock market.