Sunday, April 27, 2008

Of bonds, yields, stocks and PE

I was inspired by Mike's posting on the stock vs bond deal to do a little more research on my own. From what I can gather, the chart below seems to be the latest updated yields for treasury bill/bonds by SG govt (I'm not sure!)

Quite pathetic right? I'm not sure if I can find any bond yield longer than 20 years old, because the website where I got the data didn't have such an option for me to choose. It seems like the 20 year bond gives us a yield of 3.40% - not exactly impressive, though it's the safest form of investment. The highest the bond yield ever went up to was 5.19%, back in 1990, for 5 year bond rate.

3.4% means a PE of 29
5.2% means a PE of 19

Since current 20 yr bond yield gives us a PE of 29, does it mean that once PE of STI reaches around 29, that pretty much forms the ceiling of the upsurge, since the inflow of money should rationally go over to bonds?

Not sure :)


Mike Dirnt said...

lol now i heard bonds got PE. thats why it is not attractive to go for long term bonds. even the short term yield sucks big time. stocks should still be the way to go. when FED rate reaches low level, get ready for the economy to heat up. in the mean time, just endure inflation.

anyway it holds true in US as well. you can read about the yield curve. it is also on my blog. it gives an impression of the economy as a whole.