Rising US Treasury yields are putting pressure on US equity risk premiums, and if 10 year yields go up any more the ERP will fall below its historic average, making stocks look relatively expensive, and bonds may already look better than stocks in the UK and Europe.
US equity risk premium attractive
“While the US equity risk premium is still in attractive territory, if government bond yields continue to rise as expected by our economists, it will soon move below its long-term average,” writes Societe Generale analyst Alain Bokobza. “As bond yields rise, USTs will gradually appear more attractive relative to equities.”
Bokobza expects UST yields to approach 3.75 by the end of the year, at which point US ERP will start...
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