T-Bills yielding more than stocks? Not quite..

Why Take Risk If You’re Not Getting Paid For It?

In normal markets, investors are rewarded for taking risk. That’s the core idea behind the equity risk premium—stocks typically offer higher returns than safer assets like Treasuries because they carry more uncertainty.

But today? That premium is looking unusually thin.

The Current Setup:

Short-term Treasury bills are yielding around 4.3%, while the S&P 500’s forward earnings yield (the inverse of the P/E ratio) is hovering between 4.4% and 4.5%. The spread is practically zero—and just months ago, it was negative.

We haven’t seen a setup like this since the Dot-Com bubble. It’s likely why Warren Buffett is sitting on a record $350 billion in T-bills and cash—though one can only speculate.

In essence, investors are taking on equity risk—volatility, drawdowns, and macro uncertainty—for returns that barely outpace cash. Historically, this kind of setup has often preceded below-average equity returns over the next 3 to 5 years.

Why This Matters:

• The risk premium compensates you for uncertainty.

• Elevated T-bill yields create real competition for capital.

• Stocks need meaningful earnings power to justify current valuations.

What to Watch:

• Valuations: Are markets priced for perfection, or do earnings support them?

• Fed policy: Lower rates to revive the equity risk premium?

• Investor flows: Cash vs. equities tells you where the conviction is or isn't.

This newsletter is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Iron Valley Investments is a registered investment adviser in the State of Pennsylvania. Registration does not imply a certain level of skill or training. A copy of Iron Valley Investments current written disclosure statement discussing Iron Valley Investments business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Iron Valley Investments upon written request.