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Ten-year Treasury yield catching up to S&P 500 dividend

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Noel Randewich
·2 min read
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By Noel Randewich

Feb 22 (Reuters) - A historically hefty advantage that theS&P 500 dividend yield has held over the benchmark U.S. Treasurynote is on the verge of disappearing, a year after the collapsein interest rates set the stage for Wall Street's recovery fromthe pandemic sell-off.

Investor concerns that measures to restore a U.S. economyhammered by the global pandemic could also spark inflationlifted the yield on the 10-year note as high as 1.394%overnight, the highest since February 2020. The yieldwas last at 1.365% late on Monday.

That compares with the S&P 500's dividend yield ofabout 1.46%, according to Refinitiv's Datastream. That yield hasgradually declined as the index hit record highs for the pastseveral months, fueled by low interest rates that have madestocks more attractive.

"This is a return to the normal pattern of things, wheredividend yields are less than the 10-year Treasury," said S&PDow Jones Indices senior index analyst Howard Silverblatt.

Treasury yields have moved steadily higher in recent weeksas Democrats push a $1.9 trillion coronavirus relief packagethrough Congress, spending that is viewed by many as necessaryto boost the economy, but also seen as potentially stirringinflation as the country begins to recover. The Fed's ongoingloose monetary policy also has some investors worried aboutinflation.

More gains in Treasury yields could put pressure on stockswith the highest valuations, Jefferies analysts wrote in areport on Sunday.

Treasury yields tumbled in February 2020 as the coronaviruspandemic shocked global financial markets and crippled much ofthe world's economy. Simultaneously, falling stock pricescreated a spike in the S&P 500 dividend yield, even as manycompanies suspended payouts to shareholders.

The S&P 500 dividend yield in late March reached 2.76%, ahistorically large premium over the 10-year Treasury yield of0.76% at that time, according to Datastream.

Since then, companies have largely resumed their dividends,with many even increasing their shareholder payouts. After totalS&P 500 dividend payments dipped less than 1% last year to $483billion, total dividends in 2021 are on track to rise by about5%, Silverblatt said.

(Reporting by Noel Randewich; Editing by Alden Bentley and DanGrebler)