Summary
PSE analysis of the Australian yield gap as of April 2020. The yield gap is calculated by dividing the 10-year bond yield by the Australian Industrials earnings yield. Used as a gauge of market risk appetite — high yield gap means shares are expensive relative to bonds.
Key Claims
- The Australian yield gap is: 10-year bond yield ÷ Australian Industrials earnings yield. — confidence: high
- If the yield gap result is high, shares are expensive relative to bonds. — confidence: high
- As at April 2020, share yields remained higher than bond yields — a complete market selloff was considered unlikely. — confidence: high
- Government bonds are considered risk-free; comparing their yield to share yields gauges market risk appetite. — confidence: high