The yield spread between the S&P 500 and 10-year Treasury bonds has dropped to -1.5 percentage points. This marks the lowest level recorded since 2009, according to data from The Kobeissi Letter. The indicator, which represents the equity risk premium, shows that safer government debt currently offers higher yields than stocks.
Since 2022, the spread has declined by 440 basis points, representing the most significant five-year drop observed since the 1970s. This trend is heading toward a third consecutive year of negative readings, which is the longest streak since 2002. The shift is driven by rising Treasury yields and stock prices that have outpaced earnings growth.
On October 7, the 10-year Treasury yield reached approximately 5.36%, the highest level since 2002. At this rate, the current -1.5 point spread implies an earnings yield of about 3.9%, corresponding to a price-to-earnings ratio of 26. Meanwhile, forward earnings projections from FactSet suggest a more stable outlook with a P/E ratio near 19.
While historical data shows that negative premiums often coincide with high market valuations, analysts note that the spread is not a precise tool for timing market reversals. Research from 2025 indicates a correlation of 0.51 between the premium and 10-year returns, suggesting that lower premiums may precede weaker long-term performance for equity investors.
