As stocks have fallen from their highs last July, the dividend yield for the S&P 500 has risen up to 2.35%. With the yield on the 10-Year Treasury Note now all the way down to 1.85%, that means the S&P 500’s dividend yield is now 50 basis points higher than the yield on the 10-Year.
Below is a chart showing the S&P 500’s dividend yield compared to the yield on the 10-Year Treasury Note going back 10 years.
In the chart below, we show the spread between the S&P 500’s dividend yield and the yield on the 10-Year going all the way back to the early 1970s. When the spread is in positive territory, it means the S&P 500’s dividend yield is higher than the yield on the 10-Year.
Up until recently in 2008/2009 during the Financial Crisis, the 10-Year yielded more than the S&P 500’s dividend yield for several decades . The ZIRP era, which brought with it extremely low yields across the curve, has caused the S&P’s dividend yield to cross above and below the yield on the 10-Year multiple times over the last 8 years. That’s what the Fed wanted — to make “risky” assets attractive relative to “risk-free” rates. Various points in time in 2011, 2012, 2013 and 2015 all saw the S&P’s dividend yield cross above the yield on the 10-Year, so it’s not anything new to the market these days. That being said, the current spread of +50 basis points is the highest level seen since late 2012.