Equities are Cheap Relative to High Yield Bonds

• Tweet
• Pin It

Businessweek reports that the relationship between the earnings yield on stocks and the income provided by junk bonds is at a point where equities are relatively cheap.

The lowest-rated debt pays 3.22 percentage points more than the earnings yield on the S&P 500, the smallest gap since 2007 and a discount to the average 5.93 points of the past 22 years, data compiled by Bloomberg show. The measure of profits compared with share prices shows stocks may be undervalued next to the fixed-income investments most closely correlated with equities.

Authors Lynn Thomasson and Bryan Keogh quote the views of Paul Zemsky, the New York-based head of asset allocation for ING, which oversees $550 billion, Bill Gross, manager of the world’s biggest fixed-income fund at Pacific Investment Management Co., and the Leuthold Group, whose $1.5 billion Leuthold Core Investment Fund has beaten 96 percent of its peers in the past five years at the source below.

Source: Businessweek
***

• Tweet
• Pin It

Related Posts

• 

  Adam Parker Makes Case For Owning Energy
  Adam Parker Makes Case For Owning Energy
• 

  Carl Icahn Warns of Risk in Stocks and High Yield Bonds
  Carl Icahn Warns of Risk in Stocks and High Yield Bonds
• 

  Stanley Druckenmiller: Prices Could Adjust Immediately With the End of QE
  Stanley Druckenmiller: Prices Could Adjust Immediately With the End of QE
• 

  Barry Ritholtz Comments on Jeremy Grantham’s Expected Returns
  Barry Ritholtz Comments on Jeremy Grantham’s Expected Returns