Long-term interest rates started rising from record lows in mid-2020. Since then, the 10-year U.S. Treasury bond has gone from a yield of 0.50% to 5.25% today. Rising rates hurt bond returns, so this period has been especially brutal for bond investors. Sure, shorter-duration bonds were more isolated from rising interest rates, but not immune.

Now in the sixth year of poor returns, bond investors look at this as a dead asset class and have instead focused their attention on the stock market. Call it TINA (“There Is No Alternative”) to investing in the stock market.

I would like to propose that the bond market finds itself in a more favorable spot than it has in the last 20 years. The current yield to maturity of 5.25% on the 10-year Treasury is the highest it has been over that time period. The initial investment yield is a significant determinant of future bond returns. In fact, for someone with a 10-year time horizon, the yield is the return to maturity of the bond.

The earnings-to-price (E/P) ratio is the inverse of the popular price-to-earnings (P/E) ratio. This ratio looks at earnings as a percent of dollars invested. Below is a graph of the E/P ratio on the S&P 500 and the 10-year U.S. Treasury bond.

There is no such thing as a perfect indicator, but when the E/P ratio on bonds exceeds the E/P ratio on stocks, investors should take note.

TINA, meet TARA (“There Are Reasonable Alternatives”) when it comes to stock-only investing. The higher bond yields rise, the more they become a reasonable alternative to stocks. Nobody knows how high bond yields will rise, but they are starting to get my attention.

Thank you for your business and confidence in Bell!

Greg Sweeney is the chief investment and economic strategist at Bell Institutional Investment Management. He guides the investment strategy, and this outlook is his perspective on the latest market trends and what they could mean for investors. Any views, strategies or products discussed in this article may not be appropriate or suitable for all individuals and are subject to risks.