Screen Shot 2015-11-18 at 4.55.47 PM

Demand for stocks that offer high dividends and for bonds saddled with record-low — and even negative — yields has shaken up the traditional use of bonds and stocks in portfolios.

“Investors are buying bonds for capital appreciation and stocks for income. The world has turned upside down,” said James Abate, chief investment officer at Centre Asset Management LLC.

The shift, according to Abate, has been fueled by central-bank stimulus inflating government-bond prices across the world, pushing yields on nearly $12 trillion of government debt into negative territory.
And as bond yields tumble, more and more equities are yielding more than government bonds, spurring demand for companies offering sustainable income in the form of dividend payments.

“It is a poison brew that central banks keep serving us,” Abate said.

Treasury yields have tumbled for six straight weeks, falling to record-low levels on Friday despite hiring news that suggested the economic expansion remains intact. On Monday, as the S&P 500 marched to an all-time high, yields moved somewhat higher but were still hovering near all-time lows.

Meanwhile, since the beginning of 2016, so-called dividend aristocrats SPDAUDP, +0.58% , which include companies that have raised dividends for at least 25 consecutive years, have outperformed the main stock indexes, rising 12.5% so far this year, compared to 4.8% for the S&P 500 SPX, +0.78% and the Dow industrials DJIA, +0.69%

On the corporate side, the yields on higher-rated, investment-grade corporate bonds have also been dragged lower in the global bond rally, mainly due to foreign demand from investors fleeing negative interest rates abroad.

As a result, a rough survey by Jefferies’ global equity-strategy team showed that at least one-third of S&P 500 stocks offer dividends higher than the same company’s bond yield.

And yet, investors don’t seem to be discouraged by anemic yields and demand for bonds “seems to be insatiable,” said Aaron Kohli, interest-rate strategist at BMO Capital Markets, who thinks the bond market is now expensive.

Last week, inflows to U.S. fixed-income funds and ETFs jumped to $7.95 billion, the highest inflow since February of 2015, according to a report by Bank of America Merrill Lynch released Thursday and charted below.

Bank of America Merrill Lynch
“There’s a perception there’s a greater fool behind you,” Kohli said, pointing to the strategy of buying a bond with the intention to sell later at a higher price.