Wall St. week ahead: Another recent inversion could provide support…

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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.

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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.

FILE PHOTO: A trader works on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., September 3, 2019. REUTERS/Andrew Kelly/File Photo

“If in fact Treasury yields are forecasting a recession, then you’d prefer to own Treasuries at lower yields because equities are likely to sell off,” said Erik Knutzen, CIO of Multi Asset Class at Neuberger Berman in New York.

However, a recent note from Bank of America-Merrill Lynch Global Research’s Savita Subramanian recommended investors stick with stocks over bonds over both the short and long-term, in part due to their dividend yield and relative cheapness over bonds, while also noting fewer than half of their bear market signals have been triggered.

“For long-term investors, valuations suggest 6% annual returns; add 2% for dividends and this beats most fixed income offerings,” said Subramanian.

Additional reporting by Richard Leong; Editing by Alden Bentley and Dan Grebler


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Author:

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.

Source: {authorlink}

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