Over the next 12 months at least, fixed income returns will likely match and possibly exceed those of equities.
With bond yields lifting from ridiculously low levels, there can be little doubt that the interplay between rising bond yields and equity markets has been muted until recently. But if long-dated bond yields leap through 5 per cent,But then again, so will the buyers of $8 billion worth in the 31-year Australian government bond tender . Those bonds cleared at a yield of just under 5 per cent per annum.
For instance, a company that is forecast to be trading on a PER of 15 times has an earnings yield of 6.66 per cent. The earnings yield allows for a comparison of the company’s propensity to pay dividends with the yields in fixed interest markets or with bond yields . From the earnings yield, both the dividend payment and yield can be estimated, noting that a dividend yield should not normally exceed an earnings yield.
Over the past 18 months, interest rates have risen and chased inflation higher. Up to the end of September, in the face of rising interest rates, equity markets had performed reasonably well. The world index had risen by about 10 per cent in the nine months to September 30, driven by the heavy weighting to the US market .
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