By October 2026, the gap between the S&P 500’s earnings yield and the 10-year U.S. Treasury yield had fallen to -1.5 percentage points, its lowest level since 2009. The bond yield now exceeds the index’s earnings yield, and market commentary firm The Kobeissi Letter says the spread could remain negative for a third consecutive year—the longest such stretch since 2002. The shift points to a macro backdrop in which higher risk-free rates are weighing on equity valuations, but the spread alone does not show that a stock-market decline is imminent.
The S&P 500 yield spread turns further negative
The earnings yield is calculated by dividing the earnings of S&P 500 companies by the index’s price; it can also be viewed as the inverse of the price-to-earnings ratio. Subtracting the 10-year Treasury yield from the earnings yield produces a measure often used as the equity risk premium. A positive figure means stocks offer a higher yield than government bonds on this basis; a negative one means the Treasury yield is higher.
The Kobeissi Letter says the spread has narrowed by 440 basis points, or 4.4 percentage points, since 2022. That is the largest five-year decline since the 1970s. The gap can shrink if share prices rise faster than corporate earnings, pushing valuations up and earnings yields down, or if Treasury yields increase.
10-year Treasury yield reached 5.36%
Oil-driven inflation pressure and heavy U.S. government borrowing have both put upward pressure on Treasury yields. On October 7, 2026, the 10-year yield briefly reached about 5.36%, its highest level since 2002.
At a 10-year yield of 5.36% and an equity risk premium of -1.5 percentage points, the S&P 500’s earnings yield would be about 3.9%. That corresponds to a price-to-earnings ratio of roughly 26 times trailing 12-month earnings. The comparison captures the relative yield on stocks and bonds; it is not the return shareholders actually receive and does not, by itself, measure changes in future corporate earnings.
The Kobeissi Letter notes that negative readings have historically coincided with elevated risk appetite and high valuations. But the level of the measure does not map neatly to subsequent market performance.
A negative premium does not guarantee a market decline
In a 2025 analysis, Bloomberg columnist Nir Kaissar found that the equity risk premium had limited power to predict returns over the following one to five years. The relationship was more pronounced over a 10-year horizon, with a correlation of 0.51; lower premiums may be associated with weaker long-term returns.
That correlation does not mean a decline is inevitable or identify when a market turn might occur. The current reading shows that the yield compensation on stocks relative to 10-year Treasuries is negative, after a substantial narrowing since 2022. Future moves in share prices, corporate earnings and Treasury yields can all change the spread.