Bond Equity Earnings Yield Ratio - BEER

DEFINITION of 'Bond Equity Earnings Yield Ratio - BEER'

A metric used to evaluate the relationship between bond yields and earnings yields in the stock market. The Bond Equity Earnings Yield Ratio (BEER) has two parts – the top is represented by a benchmark bond yield (such as five- or 10-year Treasuries) while the bottom is the current earnings yield of a stock benchmark (such as the S&P 500).


Also known as the BEYR or the Gilt-Equity Yield Ratio (GEYR).

BREAKING DOWN 'Bond Equity Earnings Yield Ratio - BEER'

A BEER of 1 would indicate equal levels of perceived risk in the bond market and the stock market. Analysts often feel that BEER ratios greater than 1 imply that equity markets are overvalued, while numbers less than 1 mean they are undervalued, or that prevailing bond yields are not adequately pricing risk.

Consider the example of a BEER made up of a 10-year Treasury with a current yield of 4.5% and an S&P 500 earnings yield of 5% (P/E of 20). The ratio created would resemble the following:

Bond Yield (4.5) / Earnings Yield (5) = 0.9

The earnings yield of the stock market (or simply an individual stock) is just the inverse of the P/E ratio. If the BEER is above normal levels the assumption is that the price of stocks will decrease thus lowering the BEER.

RELATED TERMS
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  2. Benchmark Bond

    A bond that provides a standard against which the performance ...
  3. Earnings Yield

    The earnings per share for the most recent 12-month period divided ...
  4. Stock Market Capitalization To ...

    A ratio used to determine whether an overall market is undervalued ...
  5. S&P Core Earnings

    The Standard and Poor's revised version of the measurement of ...
  6. 10-Year Treasury Note

    A debt obligation issued by the United States government that ...
Related Articles
  1. Investing Basics

    DCF Valuation: The Stock Market Sanity Check

    Calculate whether the market is paying too much for a particular stock.
  2. Options & Futures

    Determining Market Direction With VIX

    The CBOE's volatility index is a helpful market indicator. Learn how it can gauge the mood of the stock market.
  3. Markets

    Company Clone Cost Reveals True Value

    Find out how calculating a reproduction cost for a company can beat out the dividend discount model.
  4. Active Trading

    The Fed Model And Stock Valuation: What It Does And Does Not Tell Us

    Learn about this popular stock market valuation model and how accurate it has been over the years.
  5. Bonds & Fixed Income

    Bond Yield Curve Holds Predictive Powers

    This measure can shed light on future economic activity, inflation levels and interest rates.
  6. Investing Basics

    The Pros and Cons of Distressed Debt Investing

    Distressed debt investing is suitable for professional investors. Besides heavy risk factors to consider, this investment type can provide a large ROI.
  7. Investing

    How Rising Interest Rates Affect Junk Bonds

    We examine the impact of rising interest rates on higher-yielding bonds.
  8. Mutual Funds & ETFs

    The 4 Best Fidelity Funds for Income Seekers in 2016

    Discover the four best fixed-income mutual funds administered and managed by Fidelity Investments suitable for income-seeking investors.
  9. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  10. Investing Basics

    How to Get More Yield From Your Investments

    Yield seeking investors can boost the amount of income their investments generate through tweaking their portfolio of stocks and bonds.
RELATED FAQS
  1. Can a bond have a negative yield?

    The return a bond provides to an investor is measured by its yield, which is quoted as a percentage. Current yield is a commonly ... Read Full Answer >>
  2. Why do low interest rates cause investors to shy away from the bond market?

    The lower rates that are found on bonds, especially government-backed bonds, are often not seen as enough by investors. This ... Read Full Answer >>
  3. What is a basis point (BPS)?

    A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial ... Read Full Answer >>
  4. Do plane tickets get cheaper closer to the date of departure?

    The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >>
  5. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  6. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center