Yield gap between Sensex earnings, 10-yr US bond narrowest since 2000

A combination of high equity valuations in India and a steady ascent in bond yields in the United States has pushed the spread between the BSE Sensex earnings yield and the US 10year bond yield to its narrowest since 2000.

- KRISHNA KANT

Moreover, the spread has languished in negative territory for three consecutive months.

Historically, a protracted period of negative yield spread has followed major corrections in the equity market, such as the dotcom crash of 2000.

Similarly, the yield spread was submerged in negative territory in the months preceding the January 2008 market correction. In contrast, the spread luxuriated in positive territory for 188 unbroken months between January 2008 and August 2023.

The yield spread narrowed to -0.61 per cent on Monday, a stark contrast to 0.99 per cent a year ago and the 20-year average spread of 2 per cent. The benchmark index's trailing price-to-earnings (P/E) multiple was 24.7x on Monday, translating into an earnings yield of 4 per cent.