US equities and credit versus government bonds
Jan 12, 2023
As interest rates have been increasing, valuations of the US equity market do not look particularly attractive compared to US government bonds. The normalized US earnings yield ( inverse of the price to earnings ratio ) is now slightly lower than the bond yield on US 10 year government bonds. This is a sign that bonds are cheap compared to equities. Inside the bond market, the yield pickup investors currently get with investment grade bonds compared to Fed funds is not looking particularly attractive either. Some investors may wonder why they would take the risk to invest in US companies while they get a comparable yield by investing in US government bonds. We believe a balanced approach is required and continue to find investment opportunities in undervalued quality companies also in the US.