Joy Wiltermuth

Tue, Jun 10, 2025, 10:53 AM3 min read

Stocks haven’t looked this expensive relative to bonds since the end of the Clinton administration ago nearly 25 years ago.

Yet bonds also look better than they have for a long time. That’s a key takeaway of a new report from bond giant Pimco, which argues that investors should be positioned in high-quality bonds as the reordering of global trade and alliances in President Trump’s second term looks likely to stick around.

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“In short, the traditional world order — in which economics shaped politics — has been turned on its head,” according to a new five-year Pimco outlook co-written by Richard Clarida, now a global economic adviser at Pimco and formerly a Federal Reserve vice chair from 2018 to 2022.

“Politics is now driving economics, especially in the U.S. and increasingly in how other countries respond.” Clarida’s team said.

With that backdrop, Pimco thinks investors should start “seizing the yield advantage in high-quality bonds rather than chasing equities at elevated valuations.”

The team also pointed out that the “equity risk premium” now stands at zero, which was the case only two other times in the past 70 years: in 1987 and in 1996-2001.

Pimco arrived at its 0.2% equity risk premium by subtracting inflation-adjusted 30-year Treasury bond yields from cyclically adjusted price to earnings.

Following the September 1987 episode of a zero equity risk premium, the stock market fell nearly 25%, while 30-year real bond yields dropped about 80 basis points, according to the report.

Roughly a decade later, stocks plunged almost 40% after a flat-to-negative equity risk premium took hold from December 1999 to February 2003.

“In that same time, 30-year real bond yields fell by about 200 [basis points],” the Pimco report said.

Longer-duration Treasury yields have been rising under the second Trump administration, with recent focus on the large U.S. fiscal deficit and additional issuance likely need to fund Republicans’ massive tax-and-spending bill, which still sits in the Senate.

The 10-year Treasury yield BX:TMUBMUSD10Y on Tuesday was at 4.47%, while the 30-year yield BX:TMUBMUSD30Y was close to 4.94%, according to FactSet data — near the psychologically important 5% level.