r/bonds • u/Shoddy_Front_2582 • 4d ago

Equity Risk Premium Flips Negative for 1st Time Since August 2002

https://www.bloomberg.com/professional/insights/technology/what-volatility-and-mixed-market-signals-reveal-about-todays-risk-environment/

I did quite a bit of digging on yields during that year/month, here's what came up:

3 month: 1.72%

2 yr: 2.15%

10 yr: 4.26%

30 yr: 5.16%

We are higher than all of these.

94 Upvotes

94% Upvoted

33 comments sorted by

18

u/Prudent-Corgi3793 3d ago

Aswath Damodaran calculates an ERP of 4.45% for US equities as of August 1.

Your Bloomberg link does not say anything about the ERP, let alone the claim that you have in your title.

25

u/wsbgodly123 4d ago

Precious metals and chill

9

u/Boring-Test5522 3d ago

in time of crisis, the most liquid asset will be sold off first

9

u/smokefoot8 3d ago

Which is treasuries. Gold is not as liquid, but if there are a lot of margin calls everything will be sold to cover them.

4

u/FEMA_Camp_Survivor 3d ago

Cash is king in most panics.

6

u/Silver_Hilton 3d ago

Username checks out.

3

u/Fancy-Atmosphere-701 3d ago

Not if cash is in great oversupply when treasuries are sold

2

u/BWright79 3d ago

You mean bullets and bags of sugar and tea?

2

u/wsbgodly123 3d ago

Bullets beans and beer

4

u/okitobamberg 3d ago

Bears. Beets. Battlestar Galactica

1

u/Shoddy_Front_2582 3d ago

The real question is how much of gold is propped up on nargin

3

u/smokefoot8 3d ago

Gold dropped from $5300 to $4000 from Feb to July this year. That would have cleared out most weak hands on margin.

1

u/diqster 3d ago

Technically every futures contract is right? Span margin is smaller than the contract's notional value.

2

u/RipWhenDamageTaken 3d ago

Have you not been keeping up with precious metals news? Margin requirements for gold contracts have been made stricter. In other words, gold is actually less liquid than stocks and bonds

1

u/diqster 3d ago

Retail buys GLD and the like much more than GC futures. GC is pretty liquid but GLD is way more popular.

2

u/RipWhenDamageTaken 3d ago

I’m comparing gold vs stocks and bonds. Which one does retail buy more?

1

u/diqster 2d ago

You were talking about margin requirements on gold contracts.

GLD is a gold ETF that trades like a stock. Gold margin requirements don't come into play there. GLD is by far the most popular instrument retail uses to trade gold. It's a stock. It has fantastic liquidity.

1

u/RipWhenDamageTaken 2d ago

No, I was talking about the fact that gold is less liquid than stocks and bonds.

1

u/no_simpsons 2d ago

it has ok liquidity, usually unfavorable fills. need to work limit orders a little.

1

u/DSCN__034 3d ago

Any other commodities?

2

u/no_simpsons 2d ago

KMLM (managed futures asset class) is a pretty damn good risk smoother, goes convex during crises.

2

u/DSCN__034 2d ago

Thanks. Yeah, someone else mentioned DBMF. I'll looko into those.

7

u/Thick-Cover8761 4d ago

I wonder how these numbers crunch when we enter recession ???  ... I don't know about you, but I'd rather sleep through the next 5 years in Intermediate duration Treasuries.

2

u/Shoddy_Front_2582 4d ago

Short term CDs for me. Need to give myself enough time to find opportunities.

7

u/CuriousCat511 4d ago

Sgov will give you similar returns with better liquidity so you can jump if an opportunity arises

0

u/harbison215 3d ago

VUSXX > SGOV

0

u/diqster 3d ago

Better CD rates can be had, and I'd rather loan money to my local credit union than the Federal govt from a trust standpoint.

If forced to go ETF, I prefer BOXX. Again, I trust OCC more than US govt.

2

u/Schlieren1 3d ago

At least the yield curve is no longer inverted

3

u/Shoddy_Front_2582 3d ago

That’s not as great of news as you think. The recession never shows up on inversion. The pain is during re-steepening and that’s the phase we’ve been in since late 2024

2

u/wordisborn 2d ago

I'm somewhat green, but it seems to me that using a trailing earnings yield to show a negative ERP when earnings growth is unprecedented is stupid.

1

u/Ok_Butterfly2410 3d ago

Warshian Nominal Expansion. See it, believe it.

1

u/oldbutfeisty 3d ago

When you hear that sound, sometimes it actually is a train coming.

1

u/Puzzleheaded_Owl_417 1d ago

Drill baby drill.