Morning Notes — Bond-Like Equities

The Fed has moved to the ‘zero bound’ again (last in 2008) and bond yields will likely stay tied to Fed policy given low inflation expectations. The current Saudi/Russia oil price war is obviously disinflationary and recessions (technical or fundamental) are not the time to expect reflation. It’s possible that bond yields could stay low for a number of years. Our experience from the Eurozone is that investors tend to save more, not less when yields are low because they need to maintain income during retirement. In periods of low yields, equities behave the same way as before but fixed income doesn’t offer enough yield, so frustrated bond investors look for equities with higher than average dividend yields. In Europe, the 60/40 asset allocation quickly shifted to 80/20 and beyond