On February 25th of this year, the 10-Year Treasury yield surpassed the dividend yield of the S&P 500 for the first time since January 17th, 2020. Currently, the S&P 500’s dividend yield stands at 1.33% vs. the 10-Year’s yield of 1.31%, so they’re essentially right inline with each other at the moment.
Since 1971, the 10-Year yield has been higher than that of the S&P 90.7% of the time, and the median spread between the 10-Year yield and the S&P’s dividend yield has been +3.5 percentage points. Both yields are much lower than their typical level since 1970. The S&P’s dividend yield has been higher than its current level 94.62% of the time. As for the 10-Year Treasury, its yield has been higher 97.55% of the time.
The spread between these two yields generally narrowed between the ’90’s and the mid 2000’s. The first time the S&P’s dividend yield crossed above the 10-Year yield was in November 2008 in the midst of the Financial Crisis. Since then, the spread has never been more than 2 percentage points in either direction, with a range from -1.99 to 1.67. The spread was the largest in September of 1981, when the 10-Year Treasury yield was 10.23 ppts higher than that of the S&P 500’s dividend yield.
The 10-Year yield has also historically been more sensitive to economic change. The average rate of change over a one month period for the yield of the 10 year has been 4.82% to the upside and -4.95% to the downside. The S&P 500 dividend yield’s average rate of change over the same time period has been 3.64% to the upside and -3.23% to the downside. The correlative coefficient between the two yields is .80, signifying that the two figures are strongly correlated. This makes sense, as the two are alternative forms of income. When one yield increases, it becomes more attractive to investors, who will sell off the alternative, thus raising the yield of the alternative as the price decreases.