If 10-year Treasury notes yield 5%, for example, and you want at least a 3% equity risk premium, then you’ll only invest in a stock if you think you can get an 8% annualized return or higher. However, if 10-year Treasury yields are 1.5%, and you still want a 3% risk premium, then you’re willing to pay a higher valuation, and thus accept a lower dividend yield and lower expected returns from stocks; even 4.5% expected annualized returns would be better than a 1.5% Treasury yield.
"""
That is from the article. But it only works if US assets are the only game in town.
If 10-year Treasury notes yield 5%, for example, and you want at least a 3% equity risk premium, then you’ll only invest in a stock if you think you can get an 8% annualized return or higher. However, if 10-year Treasury yields are 1.5%, and you still want a 3% risk premium, then you’re willing to pay a higher valuation, and thus accept a lower dividend yield and lower expected returns from stocks; even 4.5% expected annualized returns would be better than a 1.5% Treasury yield.
"""
That is from the article. But it only works if US assets are the only game in town.