NEW YORK - A decline in interest rates on long-term U.S. government bonds below the average stock dividend yield has received less attention than an inverted Treasury yield curve, but it could be a reason stocks find support after a bruising August.
While yields on intermediate-term Treasuries have been below the S&P 500’s dividend yield for several months, the long-term 30-year yield US30YT=RR inverted at the end of August, the first time since March 2009, when stocks bottomed to mark the start of the current bull run. With the dividend yield for the S&P 500 now above that of the 30-year, investors may look to stocks with high dividends for income.
Over the same time period, Stovall found 20 occurrences of the yield on the S&P topping that of the 30-year Treasury. In the following year, the index had risen by an average of 12% while climbing 80% of the time. Recent inversions along the yield curve have triggered worries about an economic slowdown, as they have preceded each recession since 1970.