Bonds Now Pay More Than Stocks. Is 60/40 Back?
Part of our series on building a mix that lasts. Start here: is 60/40 dead?
Is 60/40 back? On the yields, more than it has been in years: the bond side now pays more than the stock side earns, and in 2021 it paid far less. We’ll show you the numbers, company by company. But here’s the part worth staying for: in the five years of this data, the gap mostly shrank and stocks went up in four of them anyway. So the better question isn’t whether to switch. It’s what each part of your money actually pays you, and what it does in a bad year. We’ll come back to that.
What Does Everyone Already Know?
That bonds have been the boring half of 60/40 for a long time, and in 2022 they were worse than boring. The bond fund AGG lost 13.0% that year while the S&P 500 fund SPY lost 18.2%, and a 60/40 mix of the two fell 15.8%. Many people concluded that 60/40 was dead. Our hub piece, Is 60/40 Dead?, argues it’s half-insured instead: good for a growth scare, exposed to an inflation scare.
What people know less well is how much the price of each half has changed since then.
So, Do Bonds Really Pay More Than Stocks Now?
On the simplest comparison, yes. at 4.45% at Thursday’s close, about 4.44% at Friday’s close. The 10-year Treasury yielded 4.86% on Friday. The gap, earnings yield minus the 10-year (often called the risk premium), is now negative: about 0.4 point in bonds’ favour. Here’s how fast that changed, next to what SPY actually did each year:
| Year | Earnings yield minus bonds | SPY that year |
|---|---|---|
| 2021 | +2.63% | +28.7% |
| 2022 | +1.34% | −18.2% |
| 2023 | +0.30% | +26.2% |
| 2024 | −0.95% | +24.9% |
| 2025 | −0.60% | +17.7% |
| Now | −0.42% | +8.7% so far |
Stocks got less generous than bonds, and kept rising anyway. The one losing year came right after the most generous.
So yes, on yields, 60/40 is a better deal than it was in 2021. A simple 60/40 split of the two yields now comes to about 4.6%. In 2021, with the 10-year well under 2%, the same blend was under 4%. The bond half is pulling its weight again.
What Do The Biggest Companies Actually Yield?
An index yield is an average, and the S&P 500’s is dominated by a few giants: the top 10 holdings were 37.5% of SPY as of Nov 4, per State Street. So we looked at ten of the biggest one by one, on Trefis company data at Friday’s close. Earnings yield is what each company earned over the past year, as a share of its price; free-cash-flow (FCF) yield is the cash the business actually generated over the past year, after its spending, as a share of its market value:
| Company | Earnings yield | FCF yield |
|---|---|---|
| Apple | 2.6% | 2.7% |
| Nvidia | 4.3% | 2.8% |
| Microsoft | 3.6% | 1.5% |
| Amazon | 4.8% | −1.7% |
| Alphabet | 6.8% | 0.6% |
| Meta | 4.8% | 1.8% |
| Broadcom | 2.7% | 2.8% |
| Berkshire | 7.0% | 2.0% |
| JPMorgan | 7.4% | n/m |
| Walmart | 2.2% | 1.4% |
Only three of the ten beat the 10-year’s 4.86% on earnings yield. On free cash flow, none even reaches 3%.
That last column is the surprise. On paper, Alphabet looks like a bargain at a 6.8% earnings yield. But its net income over the past year, $236 billion, was well above its operating income of $157 billion, which suggests a lot of the “earnings” came from outside the core business, such as gains on investments. And after its spending, it kept only about $20 billion of free cash. Amazon’s free cash flow was negative. The reason is no secret: the AI build-out. We showed how the giants are spending more than they bring in, in Why Big Tech Spends $1.15 Per $1 Of Cash.
That spending may pay off handsomely. But it means that, for now, the stock half of a plain 60/40 is buying mostly growth, and very little cash yield. Thursday showed what that feels like: the AI trade unwinding, with chips and data-center builders falling hardest, after weeks of worry about power supply and growing opposition to new data centers. SPY fell 4.4% to $733.00.
Is There Anything In Stocks That Pays Like A Bond?
Yes, quite a lot, outside the giants. Here are six well-known dividend payers, same data, same day:
| Company | Dividend | FCF yield | Thursday |
|---|---|---|---|
| Altria | 5.8% | 7.1% | −0.6% |
| UPS | 6.1% | 6.9% | −2.9% |
| PepsiCo | 4.2% | 5.4% | +0.2% |
| Bristol Myers | 4.1% | 7.3% | −1.7% |
| Chevron | 3.3% | 6.4% | −1.9% |
| Procter & Gamble | 2.6% | 4.0% | −0.1% |
Five of the six generate more free cash, as a share of their price, than the 10-year pays. A coupon is fixed; these payouts can grow, or be cut.
Those aren’t free lunches. A high yield can mean the market doubts the business: UPS and Altria both have slow-growing or shrinking sales, and Altria’s revenue grew only about 2% over the past year. A dividend can be cut; a Treasury coupon can’t. That’s why a long dividend record matters. The Trefis Income Solution holds 50 companies with ten straight years of dividends and no cut in the past year, and yields about 3.0%, roughly three times the S&P 500’s dividend. In 2022 that model was up 2.9% while stocks and bonds both fell.
Then Why Not Move More Into Bonds?
Because, in this data, the gap has been a poor timer: as the premium shrank and then turned negative, moving to bonds in 2023, 2024 and 2025 would have given up three strong years. And because bonds have their own “how low can it go.” Here’s the worst peak-to-bottom fall of each fund in the last three big selloffs (for 2022, from the January 2022 high), with dividends and interest included, and when it got back to its old high:
| Fund | 2008 | 2020 | 2022 |
|---|---|---|---|
| SPY stocks | −55% · Aug 2012 | −34% · Aug 2020 | −25% · Dec 2023 |
| AGG bonds | −13% · Dec 2008 | −10% · May 2020 | −16% · Sep 2025 |
| IEF 7-10 yr Treasuries | −6% · Jun 2010 | −5% · Mar 2020 | −19% · not yet |
| BIL T-bills | −1% | 0% | 0% |
After 2022, the S&P 500 fund was back at its high in under two years. The bond fund took more than three, and the Treasury fund still isn’t there.
That’s the 2022 lesson in one line: bonds are a great cushion in a growth scare like 2008 or 2020, and a weak one when inflation and rising rates are the problem. A higher starting yield helps; it doesn’t remove that risk. There’s also a fair argument on the stock side. to about +0.95 point. Those are estimates, and they can be cut, but the current −0.42 point compares a number that can grow with one that can’t.
What Should You Do This Week?
1. Write down three yields. Your stock funds’ earnings yield, your bond fund’s yield, and the dividend yield on your income holdings. If you own the giants directly, add their free-cash-flow yields from the table above. If you don’t know one of them, that’s the first thing to look up.
2. Check your bond fund’s duration. A higher yield is a better cushion, but a long-duration fund still fell hard in 2022 and took years to recover. Know how much your bond sleeve would lose if rates rose another point.
3. Keep the mix you’ve set; adjust only by rule. If your bond sleeve is below target after three years of stock gains, rebalancing back to target captures the higher yields on offer now without betting on the gap. What this replaces: dumping stocks because bonds “pay more,” or ignoring bonds because of 2022. Both are a forecast dressed up as a plan.
The risk: if stocks fall from here, a mix that stayed at its target will lose more than one that fled to bonds. If they keep rising, the one that fled will lag for years. A rule means you don’t have to know which.
What Are The Pros Watching?
Three things. Inflation: it’s what turned 2022 into a year when both halves fell. Whether the AI spending in that FCF column starts turning into cash; if it does, the thin yields on the giants won’t stay thin. And how stocks and bonds move on bad days. On Thursday, when SPY fell 4.4%, bonds edged up, the growth-scare pattern 60/40 was built for. If bad days start bringing bonds down too, that’s the 2022 pattern returning.
What’s The Bigger Idea?
We call it Exposure hides in plain sight. “60/40” sounds like a fixed recipe, but what it buys changes with prices. In 2021 the 40 bought almost no income and plenty of rate risk. Now it buys close to 5%, while the 60 buys growth with thin cash yields at the top. The label stayed the same; the exposure didn’t. Look at what each sleeve pays and what it fears, not just its name.
60/40’s bond half is earning its keep again; that’s a reason to check your sleeves, not to switch. A 10-year Treasury yields 4.86% against the S&P 500’s 4.44% earnings yield. Of ten giants, none yields 3% in free cash flow, while five of six dividend payers we checked beat the 10-year on that measure. After 2022, stocks recovered in under two years and bonds took more than three. Write down what each sleeve pays, check your bond fund’s duration, and rebalance by rule.
What Should You Ask Next?
- What happens when you add gold and cash to a dividend portfolio? The 2022 test.
- Are dividends the new bonds? A ten-year dividend record next to a fixed coupon.
Follow this story with us: we’ll track the gap between stocks and bonds as the year closes and tell you what changed, and what didn’t, for a long-run mix.
Is Your Bond Sleeve Doing The Job You Think It Is?
Yields have changed more than most plans have. If you have $1 million or more invested, have a Trefis expert partner advisor check your bond and income sleeves for a second opinion in a free 15-minute call, or let Invest With Trefis build and run the mix for you.
For questions about this article or underlying research, email help@trefis.com.