NEW YORK (Reuters) - 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.
After the S&P 500 .SPX suffered its first monthly drop since May, in part because the Treasury curve inversion is seen by many as a harbinger of recession, equities have gotten off to a solid start in September, historically their worst month of the year. The uncommon Treasury bond/dividend yield inversion is providing a level of support.
U.S. Treasury yields have fallen in step with a global bond market rally as the trade war between China and the United States has kept recession fears on the horizon. Negative yields on government debt in countries such as Germany and Japan have also helped to depress those on U.S. Treasuries.
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.
“Whether it is the Federal Reserve signaling more cuts in the future or just in general this rally in the bond market, overall lower rates - you would think - put some sort of floor on the market as well,” said Mark Kepner, equity trader at Themis Trading in Chatham, New Jersey.
(Graphic: Inverted curve of 30-yr Treasury and S&P dividend yield - here)
“It’s pretty clear
