UK government bonds offer better value relative to UK equities

Elections are usually short term sources of volatility and the upcoming 7 May UK election assumes added significance due to its wide investment ramifications. 

At a time of ultra low government bond yields, equity is attractive relative to government bonds from valuation perspective in most developed market countries. In contrast, despite low bond yields, UK equity risk premium is not attractive. 

The internal rate of return offered by UK equities is at historical lows. The equity risk premium offered by UK equities (currently 5.6%) is below the long term average (5.7%).

"While government bond yields are low globally, our risk premium model indicates that UK government bonds offer better value relative to UK equities. Rich valuations plus election related uncertainty make us particularly cautious on UK equities." - says Societe Generale