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U.S. Treasurys are now providing less than half the yield of stocks, giving investors little reason to keep the three-decade bull market in bonds alive as housing starts, consumer confidence and corporate profits point to an improving economy.

While 10-year Treasurys yield 2.61%, up from a 2013 low of 1.61% on May 1, the aggregate earnings yield of stocks in the Standard & Poor's 500 Index was 6.4% of the index's price level, according to Federal Reserve data compiled by Bloomberg. Even after the selloff in bonds, the four percentage point gap is more than double the average of 1.9 points since 2000.

With the Fed saying it could start tapering its $85 billion of monthly bond purchases later this year, investors from Leon Cooperman's Omega Advisors to BlackRock are avoiding longer-term Treasurys, concerned that returns will be depressed for years to come. Money managers foresee the end of a rally that began after former Federal Reserve Chairman Paul Volcker vanquished inflation in the early 1980s.

"The lost decade for bonds has begun," Howard Ward, the chief investment officer at Gamco Investors, which oversees $36.7 billion, said in a June 19 telephone interview. "Stocks are likely going to be the asset class of choice over the course of the next 10 years. Now that the tide has turned and the economy is doing better, investors in bonds are going to have a hard time making any money."

Stocks preferred

With consumer confidence approaching a six-year high, housing starts increasing to 2008 levels and corporate profits double what they were five years ago, investors withdrew $9.1 billion from fixed-income mutual funds and exchange-traded funds in the week ended June 5, the second-highest total in more than 20 years, according to Lipper.

JPMorgan Chase, the most-active underwriter of corporate bonds since 2007, earlier this month joined Barclays, Bank of America., Morgan Stanley and Goldman Sachs in recommending stocks over most bonds as equity returns outpace company debt by the most since at least 1997.

The Bank of America Merrill Lynch U.S. Corporate & High Yield Index's 2.6% loss this year compares with a 12.8% gain for the S&P 500 Index ($INX), including reinvested dividends. Treasurys have lost 2.8%, according to the Bloomberg U.S. Treasury Bond Index.

Yields surge

Fed Chairman Ben Bernanke told reporters in Washington on June 19 that policy makers are prepared to begin phasing out its bond buying later this year and halt purchases around mid-2014 as long as the economy meets the central bank's forecasts. Bonds around the world fell along with stock markets.

The global economy is "in the early stages of the recovery of the equity culture and perhaps the end of a 30-year growing love affair" with bonds, Jim O'Neill, the former chairman of Goldman Sachs Asset Management and now a Bloomberg View contributor, said on Bloomberg Television. "When the game starts to change with central banks, it is inevitable bonds are going to suffer."

The recent bond selloff wasn't limited to the United States. Yields on 10-year German bunds soared 21 basis points last week to 1.73%. U.K gilts increased 34 basis points to 2.4%.

"Liquidity today is king and what we're getting is cascading liquidity failures," Mohamed El-Erian, chief executive and co-chief investment officer at Pimco, said. "When you change the liquidity paradigm, what you get is massive technical unwinds and that speaks to the volatility."

Globally, bonds of all types have lost 1.5% in 2013, even after accounting for reinvested interest, Bank of America Merrill Lynch's Global Broad Market Index shows. The gauge hasn't had a down year since 1999, when it fell 0.26%.

Prospects for less Fed stimulus also hit stocks last week. The S&P 500 fell 2.1% to 1,592.43, down from the record high of 1,687.18 on May 22. The benchmark Stoxx Europe 600 Index 3.7% , while the MSCI World Index (MSCI) dropped 2.9%. The S&P dropped 1.21% Monday.

Earnings outlook

Profits for companies in the S&P 500 will jump more than 10% in each of the next two years after almost doubling since 2008, the average of more than 11,000 analyst estimates. Earnings gains of that magnitude would send yields to 8.3% assuming no change in the stock index. The S&P 500 now trades at a multiple of 14.7 times this year's profit forecast.

"The stock market multiple is low relative to interest rates," Leon Cooperman, the chairman and chief executive officer of hedge fund Omega Advisors, with $8.4 billion under management, said in an interview on Bloomberg Television. "There's scope for rises," he said, adding that a fair level for the S&P 500 is between 1,600 and 1,700.

Bonds have their backers. Treasurys will be the best performers for the next few months, according to Jeffrey Gundlach, manager of the $41 billion DoubleLine Total Return Bond Fund. The fund returned 4.35% in the 12 months ending of June 21, beating 91% of its peers. It has lost 0.1% this year, better than 88% of competitors.