By Rudi Filapek-Vandyck, Editor FNArena

We truly are living through "interesting times".

As calendar year 2012 matures according to its own script, yet another historic event has occurred and solidified. As investors and the media remain fully occupied by policy intentions in Europe, the US and China, this historic event has remained largely unnoticed, unreported and unanalysed.

But rest assured, we will hear a lot more about it in years to come with many academic studies and reflective analyses to be published in the decades ahead.

The event I am talking about is the switch between yields on government bonds and in equity markets. We have arrived at a point in modern history when dividend yields in the share market are higher than the yield available on 10-year government bonds in every major developed economy in the world, including in Australia.

Usually, when such an event happens, this is widely considered as a strong Buy signal for equities and we have certainly seen the bulls among share market experts make such calls over the year past. As this situation has persisted, however, those calls have been relegated to the sidelines, ignored by a global investment community that has to date shown no intention to return to the share market like it was 2004 all over again.

As a matter of fact, and as illustrated by the chart below (thanks to Citi analysts), the "usual" in the previous sentence refers to the period between the mid-1950s up until 2011 when the yield on government bonds indeed was higher, and often much higher, than what was available via the share market. But look further into history and it would appear that was more of an aberration instead of the norm. Before the 1950s, as also clearly shown in the chart below, the dividend yield on equities was higher than what was on offer via government debt. The last time this changed (prior to the 1950s) was in the late 1920s when equities rallied into an unprecedented bubble - at that time.

The full story is for FN Arena subscribers only. To Subscribe click here

Or If You're New To FN Arena - click here for a trial

If you are a subscriber login here