The gap between US government securities and stocks is getting bigger.
On Monday, yields on 10-year US bonds climbed to 2.7%, reaching a point many executives expected in the last months of 2018. In less than a year, government treasury bills managed to rise by more than 35.5%, due to strong global growth and Fed policy change, to more stringent.
What does this market statistic mean?
For many, 3 percent yield on US 10-year bonds will be the time when corporate finance costs will become too expensive and the stock market will lose its brilliance. If yields rise above 3%, much of the dividend companies will become unattractive to investors. Since the beginning of the year, the SP500 has risen by 6.8% after reinvesting much of the dividends earned in 2017. So far, at a yield of 10-year bonds of 2.7%, it was more profitable to own dividend companies, relying on dividend yields.
In fact, if we look at it in detail, it is clear that the one-year dividend yield of the SP500 companies is 1.78% while at the same time yield on two-year US bonds reached 2.12%.
"Rising bond yields are already hampering a large share of dividend companies, and if we see 3 percent return on 10-year US bonds in the coming weeks, I do not see how the stock market will hold." - said Peter Tchir, chief strategist at Academy Securities Inc.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.