On a year-on-year basis, dividend yields of index funds are greater than even the 30-year treasury coupons; the spread is even more pronounced on shorter-dated treasuries. For instance, a year's worth of dividend's from Vanguard's S&P500 index fund divided by September's market price comes out to over 1.6%, compared to the 1.5% coupon on the 30-year treasury.

I remember hearing these facts laid out on some finance network, but in terms of their implication, I'm not sure they elaborated -- I can only remember they said that it was rare for index fund yields to outperform the 30-year treasury.

A large driver behind this seems to be Fed purchases / "don't fight the fed" investor mentality. However, unless absolutely necessary, I don't want the scope of the question to cover drivers. Maybe we can just treat it all as exogenous or a black box so that the focus can be on implications.

Anyway, the point is: When I hear these facts, nothing really jumps out at me, despite the alleged "rareness" and "significant-sounding" technical analysis. I have a feeling I'm not connecting the dots correctly.


What should be jumping out at me when I see index fund dividend yields outperforming 30-year treasury yields and what does theory have to say about the direction of fund flows / capital market?

Note: If you prefer to caveat your answer with a particular driver, that's fine, but I'd like to stick to high-level implications.

  • Are you talking about specific index funds? Otherwise, given the risk/reward of shares vs govt bonds, isn’t it expected that index funds outperform bonds over the long term? – Lawrence Oct 26 '20 at 7:51
  • @Lawrence I had in mind any large index fund, as in large AUM. And as to whether it's expected or not, I'm not sure -- would like to get the consensus view. On the one hand, maybe risk premium should be reflected in returns, but on the other hand, the analysts seemed to be asserting that outperforming the 30-year T-bill was noteworthy. – Arash Howaida Oct 26 '20 at 8:08
  • 2
    Context is likely to be important here. Perhaps they were talking about a period when index funds were significantly negative due to Covid or the GFC or some other large-scale event. If you are not constrained by NDAs regarding the reports, try summarising the context of those reports in a paragraph or two to add to your question, and also add a link in your question to the reports you're referring to. – Lawrence Oct 26 '20 at 8:16
  • I'm not sure that dividend yields of an index fund are particularly significant for anything. – glibdud Oct 26 '20 at 15:04

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