JPMorgan Warns Only 9% of Small-Cap Stocks Yield Above the 30-Year Treasury

A 24-Year Low in Dividend Cover

JPMorgan's small- and mid-cap strategists, led by Eduardo Lecubarri, have told clients that government borrowing is turning long-dated US bonds into direct competition for equity income. The bank put a number on the squeeze: only 9% of US small and mid-sized company stocks now pay dividends yielding more than the 30-year Treasury, down from 19% two years ago and the lowest share in 24 years. A dividend is the cash a company hands to its shareholders, and a 30-year Treasury is a loan to the US government that pays a fixed return for three decades. When the safe bond pays more, the riskier equity looks less attractive to anyone buying an income stream. The strategists traced the pressure to sovereign debt: roughly 60% of global GDP now sits in countries owing more than a full year of output while still running budget deficits, a combination they described as a first in history. Two years ago the same screen captured nearly twice as many payers, a shift the team attributes to deteriorating government finances rather than weak corporate payouts. Investors "seem to be ignoring" the risk, the note warned, flagging "nasty surprises" ahead. The document moved across trading desks after the summary posted October 8 reported that surging yields now threaten small- and mid-cap returns. The market gave the argument a hearing the same day. The 30-year yield touched 5.70% on Wednesday, its highest in 24 years, and stood just shy of that peak at the time of writing. Small caps took the harder hit: the Russell 2000, an index of about 2,000 smaller US firms, fell 1.31%, while the S&P 500 slipped 0.22% at the close, closing data shows.

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The summary posted October 8.

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Dashenlin and Befesa Make the Cut

The same note that carried the warning also carried its exceptions. JPMorgan screened smaller companies worldwide for dividends that beat their home country's 30-year bond and added two names to its model portfolio, the bank's sample list of favored holdings. One is Dashenlin Pharmaceutical, a $3 billion Chinese pharmacy chain. The other is Befesa, a €1.4 billion German-listed firm that recycles waste from the steel industry. Both carry an Overweight rating, the bank's label for holdings it expects to beat their peer group. The screen explains the choice: each company pays out enough to clear the long bond in its home market, the exact test the 9% figure shows most US small and mid-caps now fail. The strategists conceded that today's dividend share resembles the 1990s, when long yields were falling and smaller companies prospered. Their rebuttal to that comparison was blunt: "These are not the 1990s." Not every market voice shares the alarm. Jim Bianco, a longtime bond bear, has turned bullish on bonds and calls 5% yields fair value, a reversal that puts him on the opposite side of the JPMorgan team over whether current levels are a threat or a floor. Policy adds another layer: Federal Reserve minutes released Wednesday showed most officials backing another rate hike in 2026, with the next decision scheduled for October 27-28.

The Duration Call Behind the Screen

Read as a whole, the note is a duration call dressed as a stock screen. When only one in ten smaller US companies out-yields the long bond, income-seeking capital has little reason to take single-stock risk, and the gap widens if the Fed delivers the hike most officials backed in Wednesday's minutes. The two model-portfolio additions show where the bank still finds value: in firms whose payouts clear local long yields, not in the index at large. Markets now look to the October 27-28 meeting to see whether 5.70% marks a peak for the 30-year yield or the start of a higher range.