Breaking down the rare convergence of the 10-year Treasury yield and S&P 500 dividend
26 February 2021
Data: YCharts; Chart: Axios Visuals
A milestone was reached in the markets Thursday: The yield on the 10-year Treasury note rose to match the dividend yield on the S&P 500
Why it matters: The two yields have been inverted since the beginning of last year, which is historically unusual.
How it works: The 10-year Treasury note is a risk-free asset: If you hold it for 10 years, you know exactly how much it's going to return. Right now, that yield is 1.52%.
- The S&P 500 dividend yield is normally lower than the risk-free rate. Investors earn less in dividends than you would holding the same amount of money in Treasury bonds, but they hope that rising stock prices will make up the difference.
Context: The Treasury yield was artificially depressed by the flight-to-quality trade during the coronavirus pandemic, as well as by large-scale purchases by the Federal Reserve. Now yields are rising on optimism that aggressive fiscal policy might reignite inflation.
The big picture: Much of the rise in the S&P 500 has been driven by high-growth technology stocks. Like all stocks, they're valued according to the net present value of their future earnings — but unlike most stocks, a very large part of today's valuation is arrived at by extrapolating earnings out by more than 10 years.
- Those values are arrived at using what's known as a discounted cashflow calculation, where future earnings are discounted by a "discount rate." As interest rates rise, the discount rate goes up and the present value of the future earnings goes down.
The bottom line: As interest rates rise, that's naturally going to apply downward pressure to stock prices — especially when it comes to white-hot emerging tech stocks.
- For evidence, look no further than Thursday's 2.5% drop in the S&P 500, which was led by a sell-off in tech shares — and global bonds.
Transcripts show George Floyd told police "I can't breathe" over 20 times
Section2Newly released transcripts of bodycam footage from the Minneapolis Police Department show that George Floyd told officers he could not breathe more than 20 times in the moments leading up to his death.
Why it matters: Floyd's killing sparked a national wave of Black Lives Matter protests and an ongoing reckoning over systemic racism in the United States. The transcripts "offer one the most thorough and dramatic accounts" before Floyd's death, The New York Times writes.
The state of play: The transcripts were released as former officer Thomas Lane seeks to have the charges that he aided in Floyd's death thrown out in court, per the Times. He is one of four officers who have been charged.
- The filings also include a 60-page transcript of an interview with Lane. He said he "felt maybe that something was going on" when asked if he believed that Floyd was having a medical emergency at the time.
What the transcripts say:
- Floyd told the officers he was claustrophobic as they tried to get him into the squad car.
- The transcripts also show Floyd saying, "Momma, I love you. Tell my kids I love them. I'm dead."
- Former officer Derek Chauvin, who had his knee on Floyd's neck for over eight minutes, told Floyd, "Then stop talking, stop yelling, it takes a heck of a lot of oxygen to talk."
Read the transcripts via DocumentCloud.