3. Corporate bond yields
Nonetheless, many of the largest Dividend Aristocrats have lower-than-average yields right now. This is heavily influenced by other macroeconomic factors, and it might be a while until yields move back toward historical averages. Investors need to understand this dynamic and plan accordingly, especially retirees and income investors.
The chart below shows the average effective interest rate for corporate bonds issued by the most creditworthy companies. But why include a bond chart in a discussion of the stock market? Well, because these current bond yields are exceptionally low, they tend to have an outsized effect on other parts of the economy, especially the stock market.
Capital-market cash flows and asset valuation are complicated, but there’s a great chart that explains some of what’s happening in the charts above. Interest rates are near historical lows because of major monetary stimulus over the past 15 years. The Federal Reserve has responded to economic threats by bringing interest rates lower. That has moved bond prices lower as well.