With interest rates rising across all treasury bonds, there comes a point where owning bonds becomes more attractive than owning stocks – where you’re willing to have a greater than 50% weighting in bonds in your portfolio. After all, treasury bonds offer a guaranteed return if held to maturity and they are state income tax free.
Even with the 10-year bond yield rising to ~3.25% on October 10, 2018 from just 1.46% on July 1, 2016, is 3.25% a high enough risk-free rate for investors to make a shift mostly towards bonds? Probably not.
In a research report written by Savita Subramanian, Head of US Equity & Quant Strategy at Bank of America Merrill Lynch, she believes the 10-year bond yield has to reach 4.5% – 5% before US equities start to look less appealing than bonds.
Take a look at this chart.