This is the time to put your funds to an asset class which has a high yield now and one such asset class would be equities. Unfortunately, the majority of the investors would be fleeing to bonds or cash at this point of time.
Wednesday, July 22
Bond yields are not high
I was looking at the yields of the SGS bonds recently and the yields are not high at all. In fact, the yields are rather depressed. As you can see from the yield graphs of the SGS bonds with different maturity periods, which are taken from fundsupermart, all the yields of the SGS bonds are near their previous troughs with some of them even breaching the previous troughs.
This is the time to put your funds to an asset class which has a high yield now and one such asset class would be equities. Unfortunately, the majority of the investors would be fleeing to bonds or cash at this point of time.
This is the time to put your funds to an asset class which has a high yield now and one such asset class would be equities. Unfortunately, the majority of the investors would be fleeing to bonds or cash at this point of time.
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Agreed. But bond yields are traditionally low, because of their supposed low risk nature. We've all heard the adage: "High gains, high risk", and people are fleeing to bonds or cash right now because we still can't figure if things are bullish or bearish in the equities markets.
ReplyDeleteMany I know are adopting wait and see, and probably want to park their money in safer bets until they get a better idea of what to do with their money. So no doubt bonds yields are low, for the next 1-2 years, they provide an avenue for people to hedge until they decide what to do with it, and I think the appeal now is more to do with risk and security, as opposed to gains.
Hi,
ReplyDeleteI'm looking at it from another point of view and that is from the point of yield. A 15 years SGS bond is yielding around 3% now while the dividend yield from the STI ETF, which is representative of the local stock market is close to 4%. As such, it is better to purchase equities even now. In fact, when the STI ETF was trading at $1.6, the dividend yield stands at 6.25% and this is an even better compelling factor to buy equities.
We can't figure out whether things are bullish or bearish in the equities market and we won't be able to do so in the future but that is not important. The important question is the valuation of the stock market and that is whether equities are overvalued or undervalued and looking at the yield is one way to tell. It is attractive to buy anything that is of substance below their true worth.
Similarly, the majority of the people I know are adopting a wait and see approach. And I also do know of the fact that the majority of the investing public are not profitable unfortunately.