Yield Gap Yield gap is the ratio of the yield of a long-term government bond and the earnings yield of the equity market. Yield Gap helps in identifying the relative attractiveness between equity and fixed income to determine the appropriate asset allocation. Eg: Assume that the 10 year G-Sec is at 9% and the P/E of Nifty is 16. Since the earnings yield is nothing but the inverse of P/E, the earnings yield of Nifty in this case is 1/16=6.25% Hence, yield gap is 9/6.25= 1.44 As a rule of thumb, if yield gap >1; debt is more attractive than equity. And if yield gap
Posted on: Fri, 24 Jan 2014 14:53:43 +0000
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