The Bond Market's Valuation Buzz

There's been a lot of recent buzz about how cheap or expensive stocks are vs. bonds. Most comparisons look at stocks relative to the 10-year Treasury. But different parts of the bond market have been going in different directions in recent years, so relying on just one area of the bond market to make a comparison can be misleading.

At my old firm, we used to track the relative valuation of equities against a variety of bonds; I'll try to recreate some of that work here. The results of this exercise depend on some highly subjective judgments, so I'll outline my assumptions and how the conclusions would change under different outlooks. Also, the results only illustrate the valuations of different asset classes. They don't necessarily predict outperformance, as assets that look cheap sometimes get cheaper, and overvalued sectors sometimes become pricier.

Apples to Apples

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