Bond Equity Earnings Yield Ratio - BEER

AAA

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).

INVESTOPEDIA EXPLAINS '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. Earnings Yield

    The earnings per share for the most recent 12-month period divided ...
  2. Dividend Yield

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

    A bond that provides a standard against which the performance ...
  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 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 does the Macaulay duration indicate about a bond?

    The Macaulay duration measures the present value weighted average maturity for a bond. It describes how sensitive a bond’s ... Read Full Answer >>
  4. How can a representative sample lead to sampling bias?

    A representative sample, like any other type of sample, by its very nature leads to a degree of sampling bias, or sampling ... Read Full Answer >>
  5. How do I convert a spot rate to a forward rate?

    Think of the relationship between spot and forward rates in the same way as the relationship between discounted present value ... Read Full Answer >>
  6. What's the difference between a representative sample and a convenience sample?

    A representative sample properly represents the statistical population from which it is chosen, whereas a convenience sample ... Read Full Answer >>
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

    Explaining Fixed Income

    A person living off a fixed income is usually a retiree receiving a fixed, steady monthly inflow of cash.
  7. Investing Basics

    What is the Rule of 70?

    The rule of 70 is an easy way to calculate how many years it will take for an investment to double in size.
  8. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  9. Mutual Funds & ETFs

    Is the DSUM Yuan Fixed Income ETF a Good Bet?

    An an depth look at PowerShares Chinese Yuan Dim Sum Bond ETF and its risks.
  10. Trading Strategies

    Top 3 High Yield Stocks with Growth Potential

    High yield and growth potential don't often go hand in hand, except when it comes to these three stocks.

You May Also Like

Hot Definitions
  1. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  2. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  3. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  4. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  5. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  6. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
Trading Center