How high will bond yields need to go to create a big move from stocks to bonds?

Discussion in 'Trading' started by let it run, May 24, 2006.

  1. OK, stating the obvious quickly, if bond yields rise (on inflation fears, more rate hikes or whatever) your average investor/hedge fund will note that bonds become comparatively more attractive than stocks when weighing up risk/yield.

    How high would bond yields need to creep in order to see a mass exodus of funds from investment in stocks (seeking div yield + capital growth) to bonds (seeking less risk + sufficient compensation for money off corporate table)?

    This is the game we play every day when trading the markets but I have to admit that I am a bit wary of the fact that I don't know where your typical bank, hedge fund or whatever, would draw the line on putting their chips on risk free vs expected returns. I'm sure it doesn't come down to a pure mathematical equation, as fundamental data would distinguish their outlook on the return posible from stocks, but surely there has to be a rule of thumb where the attractiveness of bonds becomes significantly influential versus an inferior dividend yield from stocks.....
     
  2. Rule of thumb? If you believe that the long-term average rate of return for stocks is ~8% and if you're a fundamentally-minded institutional investor, you'd buy bonds with both hands when investment-grade yields get to those levels. You'd raise cash by selling off stocks.
     
  3. empee

    empee

    over 5.5 on 10yr (sustained not just a day or two)
     
  4. Daal

    Daal

    and why that number
     
  5. cvds16

    cvds16

    very
     
  6. speaking personally, for my non-trading retirement style accounts, I will start to buy the 10 year at 5.75% and start to ladder in on the 30 year at 6%. Will probably split my 30 year holdings between zeroes and coupons with the percentage of zeroes going higher as we approach 8% on the long bond. It is an anti-deflation play.

    It has been suggested that current laws for pension funds, etc support bond buying above 6% for the 30 year.
     
  7. jetbird

    jetbird