Now, it’s a different landscape.
Bonds are more reliable than last year because the yields are already high. Even if they rise further, there is now a luxury cushion, and any possible price declines should be offset, and then some, by the proceeds the bonds generate. Bond mutual funds and exchange-traded funds are unlikely to see declines in last year’s range. “The bond math tells us it won’t happen,” kathy joneschief fixed income strategist at the Schwab Center for Financial Research, in an interview.
With the federal funds rate Above 5 percent, the rich performance has spilled over into money market funds and Treasury bills of up to one year in duration. Now that the debt ceiling battle is behind us and the Treasury is issuing a lot of new debt, it’s fair to say, once again, that those investments are safe. You can’t make that claim about tech stocks.
There are many ways to compare the valuation of the stock and bond markets.
It’s a little weird.
Basically, the higher the bond yields and the lower the stock earnings, the better the bonds will stack, and vice versa. One long-standing metric is comparing the past 12-month earnings performance of the S&P 500 to the returns of Treasuries. At the moment, the bonds are doing very well in this horse race.
The S&P earnings yield is 4.34 percent, according to FactSet, making it lower and in some ways less attractive than ultra-safe yields of more than 5 percent on one-year Treasury bills. Investment Grade Corporate Bonds they are also attractive. Yields on 10-year Treasuries are lower, well below 4 percent, reducing their appeal.
What all of this means is that the TINA acronym no longer applies: there are viable alternatives to the stock market right now.
