A new era in the war on savers
Illustration: Lazaro Gamio/Axios
Stocks may be the safe asset now. With U.S. Treasury yields in a free fall and the corresponding decrease in U.S. bank savings and money market rates, the S&P 500 dividend yield now pays more than both the 30-year U.S. Treasury bond and the average online savings account, data show.
The result: Investors get a better automatic return holding stocks than they do putting money into historically less risky assets.
What's happening: Expectations for further central bank easing have pushed yields on long-term U.S. Treasury bonds to near all-time lows.
- Worried about the state of the economy, investors have been shoveling money into safe-haven bonds and savings accounts for much of the last year.
- But the actions of global central banks and traditional banks are now making that prospect much less attractive.
The Fed's 25 basis point cut last month means savers have seen the interest they earn from online banks fall by approximately 15 basis points to around 1.9%, according to data provided to Axios from savings fintech platform MaxMyInterest.
The intrigue: With the recent plunge in yields pushing the 30-year Treasury bond to a record low of 1.905%, and the 10-year yield below 1.5%, bonds are now riskier than stocks, argues Dev Kantesaria, portfolio manager and founder of Valley Forge Capital Management.
- "Despite recession fears ... U.S. equities currently offer the best risk/reward opportunity in the marketplace," Kantesaria tells Axios in an email.
- "The benefits of holding bonds at current near zero interest rates doesn’t compensate investors for the risk that interest rates could rise even modestly from here and cause loss of principal."
The big picture: Online savings accounts currently pay about 20 times more than the average from brick-and-mortar bank savings accounts, and even that is now less than what investors receive from the dividend on S&P 500 stocks.
- With more than 30% of global bonds paying negative yields, cautious investors are running out of places to hide.