Lower Rates and the Market Premium
Year-end corporate market premium versus Q4 average 10-year Treasury yield · 1959–2025. Across the full record, lower long-term yields align with a larger corporate market premium (r = -0.79). But the relationship flips inside the current 2009–2025 premium era (r = 0.28), so rates cannot explain the modern gap on their own.
What does it show?
Across the full record, lower long-term yields align with a larger corporate market premium (r = -0.79). But the relationship flips inside the current 2009–2025 premium era (r = 0.28), so rates cannot explain the modern gap on their own.
Methodology
Use calendar-year-end observations from Federal Reserve Financial Accounts table S.11.1.b for U.S. nonfinancial corporate business. Total equity at market value (LM103181105.Q) is compared with net worth, defined as assets minus non-equity liabilities (FL102090005.Q). The market premium is the arithmetic residual: total equity minus recorded net worth. Intellectual-property products already recorded at current cost (LM105013765.Q) are retained as context but remain inside recorded net worth. Values are end-of-period and not seasonally adjusted. Join each year-end premium to the average monthly 10-year Treasury constant-maturity yield in that year's fourth quarter. Split the same-scale display at 2009 because that year begins the first uninterrupted positive-premium era, not because a statistical breakpoint procedure selected it. Show an unweighted descriptive linear fit and Pearson correlation inside each panel. Limitations: This is the U.S. nonfinancial corporate sector, not the S&P 500; it includes a broader corporate and foreign-direct-investment equity universe. The residual is not a direct valuation of patents, brands, software, data, organizational capital, or other intangible assets. It also reflects expectations, risk premia, sentiment, and measurement differences. Recorded net worth already includes some intellectual-property products at current replacement cost, so 'recorded' is not synonymous with 'tangible.' Federal Reserve Financial Accounts history is revised; the source release is pinned so the prototype remains auditable. Interest rates and liquidity are economy-wide monetary conditions, not treatments assigned independently of corporate valuations; the comparisons are descriptive, not causal. The 10-year yield is the average of October, November, and December monthly observations; the market premium is measured at calendar year-end. M2/GDP is the reciprocal of FRED's M2 velocity series at Q4. The 2020 redefinition of M1 and M2 creates a monetary-aggregate break that must remain visible in interpretation. The 2009 boundary is selected from the premium's sign and persistence, so it must not be presented as independent evidence of a monetary structural break. Correlations between levels can reflect shared trends and regime composition. The companion rolling-correlation chart is the preferred sensitivity check. Sample sizes differ sharply by claim: the full-record r = -0.79 rests on n = 67 annual observations and is significant at any conventional level, while the 2009-2025 era's r = 0.28 rests on n = 17 (95% interval roughly -0.23 to +0.66) and is not statistically distinguishable from zero.