Gilts, Yields and Equity Bonds

This blog’s chart shows the ratio of the 15 year gilt yield to the yield on equities and implies, for those who like looking at the statistical tea-leaves, that equities are very cheap. As ever, there may be two jokers in the pack. Gilts have had a truly remarkable run since yields of well over 4% during the time of Gordon Brown as Prime Minister, when the talk was of a funding crisis, reoccurring inflation and even recourse to the International Monetary Fund, have now dropped to 3.93% at 15 years. Equally, the equity dividend yield (Internal Rate of Return) may be overstated since the data is historic and BP, which at the best will suspend its dividend, accounts for one seventh of all FTSE dividends. The historic data have also witnessed dividend disappointments and the dividend yield may not, therefore, need to be adjusted. Lest anyone, wrongly, thinks that Kassius is an anti-equity house, this is interesting food for thought.