Equities vs. Government bonds

Today's comment I look at the long-term and recent performance of equities vs. government bonds (ie US Treasuries). Courtesy of BASML, these charts below, which are based on a rolling 10-year annualized return, illustrate that in the last decade, government bonds have outperformed equities. With that being said, with the Federal Reserve supporting the market by keeping rates low for an extended period, I would currently allocate more to equities. Although government bonds did outperform equities last year, I believe equities will outperform US Treasuries this year. As I have previously noted, equity valuations are attractive, macroeconomic factors are trending positively, government policy is supportive and S&P dividend is yielding more than 10-year US Treasuries. I would still favor allocating some of your portfolio with corporate bonds, but would not be a buyer of US Treasuries.

The reason to be bullish for US Treasuries is if you believe there will be a major banking and debt crisis that spills over into US and China. And, as we have seen so far this year, that has not been the case. Earlier today, Greece's government approved austerity measures necessary to receive its next round of bailout package. The market has digested this positive news, and the S&P 500 is trading in the black to begin the day (up about 0.5% right now)