U.S. Real Treasury Yields Hit Decade-Plus Highs as Equity Risk Premium Turns Negative
Alina Collins
The 30-year U.S. Treasury real yield has climbed to 2.91%, the highest since 2008. Measured against it, the S&P 500 equity risk premium has dropped to −0.12 percentage points — bonds now out-earn stocks on a risk-free basis, putting systematic pressure on equity valuations.
The equity risk premium went negative — what does that mean?
The equity risk premium (ERP) — the extra return investors earn for holding stocks instead of government bonds — is the core gauge of whether equities are worth the risk.
S&P 500 earnings yield: 4.95%. 30-year Treasury yield: 5.07%. ERP: −0.12 percentage points. This means → holding a 30-year Treasury now offers a higher expected return than the S&P 500. Investors are effectively paying to take on equity risk.
Per *Barron's* data, this reading is lower than 93.6% of all trading days since July 2007 — a historical extreme.
Why are real yields spiking?
Real yields — what Treasuries pay after stripping out inflation — are the engine behind this compression. The 30-year real yield hit 2.91%, the highest since 2008; the 10-year reached 2.35%, the highest since late 2023.
Two forces are driving the move: ① U.S. debt keeps expanding, forcing the Treasury to issue more bonds → supply pressure pushes yields up. ② Markets fear the Fed has not fully tamed inflation and may be forced to hike again this year or next.
James Reilly, senior markets economist at Capital Economics, noted the 2-year real yield "surged at a very rapid pace." He called the recent rise "among the largest in decades."
Does a stricter calculation make it look even worse?
Rosenberg Research founder David Rosenberg uses unadjusted earnings to calculate the S&P 500 earnings yield — just 4.3%. Against the 30-year real yield, the resulting ERP is razor-thin.
He wrote last week: "By this measure, the equity risk premium is paper-thin by historical standards."
In plain terms = whichever method you choose, the direction is the same — the "bonus" for owning stocks over bonds is vanishing, or has already vanished.
What should investors watch next?
The S&P 500 has hit multiple all-time highs this year. But with bond yields still climbing, equities' pricing advantage over bonds is being erased.
This means → there is really only one variable that matters now: whether real yields peak and pull back. If they do, equity valuations get breathing room. If they keep rising, richly valued stocks face the most pressure.
This reflects a deeper shift: the market is repricing how much compensation investors should demand for holding risky assets. That is not a one-day wobble — it is a structural reset of the valuation framework.
Content is for reference only, not financial advice.