The latest threat to equities now is no macro risk – it’s rising 2-year Treasury yields, according to some fund managers and strategists. Short-term, relatively risk-free Treasury bills and funds are back in the spotlight as the 2-year Treasury yield continues to rise. It hit 4.1% on Wednesday, its highest level since 2007. As of Thursday during Asian hours, it climbed to 4.124%. “The new headwind for equities is not just about inflation, the potential recession or even falling earnings estimates, but about the” competitive threat “that rising interest rates make bond yields more attractive,” he said. said John Petrides, portfolio manager at Tocqueville Asset Management CNBC. “For the first time in a long time, the TINA (There is no alternative to stocks) market no longer exists. The yields on short-dated bonds are now attractive,” he said. Michael Yoshikami, founder of Destination Wealth Management, agreed that bonds have become a “relatively attractive alternative” and could prove to be a “game changer” for equities. While Mike Wilson, Morgan Stanley’s chief US equity strategist, said that bonds offer stability in today’s volatile markets. “While Treasury bills run the risk of higher inflation [and the] The Fed reacting to that is definitely offering a safer investment than equities, “he told CNBC’s” Squawk Box Asia “Wednesday.” To be honest, I was surprised that we haven’t already seen a bigger flight to that. safety, given the data we’ve seen. “Data from BlackRock, the world’s largest asset manager, shows investors have accumulated in short-term bond funds. Flows in short-term bond ETFs have so far been at $ 8 billion this month – BlackRock said Tuesday the largest short-term bond inflows since May, while US-listed short-term Treasury ETFs have attracted $ 7 billion in inflows so far in September, six times the volume of inflows. last month, BlackRock said., with the S&P 500 down about 4% so far this month., the traditional 60/40 portfolio is back. This sees investors putting 60% de l their portfolio in equities and 40% in bonds. “At current yields, a portfolio’s fixed-income allocation can help contribute to expected rates of return and help those looking to get a return from their portfolio to satisfy a cash flow distribution option,” he said. Here’s a look at how Citi Global Wealth Investments shifted its allocations, according to a September. 17 report: The bank removed short-term US Treasuries from its largest underweight allocations and increased its overall US Treasury allocation. It also reduced its allocation to equities, but remains overweight on dividend-growing stocks. Citi added that 2-year Treasuries are not the only attractive option in bonds. “The same goes for high-quality, short-lived spread products, such as municipal bonds and corporations, with many trading at taxable equivalent yields closer to 5%,” Citi said. “Right now, savers are also sending inflows into higher-yielding money market funds as yields eclipse safer bank deposit rates.” Petrides added that investors should exit private equity or alternative asset investments and shift their allocations to fixed income. “Private equity is also illiquid. In a market environment like this, and if the economy could continue on a recessionary path, clients may want greater access to liquidity,” she said. What about long-term bonds? Morgan Stanley on a September 19 note stated that global macro hedge funds were betting on another 50 basis point increase in the 10-year Treasury yield. That could bring the S&P 500 to a year-to-date low of 3,600, the investment bank said. The index closed at 3,789.93 on Wednesday. “If these materialize, we believe the downtrend could become more extreme in the short term and the risk of market overreaction will increase. We reiterate to remain defensive in risk positioning and await further signs of capitulation,” wrote the marketers. Morgan Stanley analysts. Rising rates also mean there is a risk that the economy will slow down next year and long-term bonds could benefit, according to Jim Caron, Portfolio Manager at Morgan Stanley Investment Management. “Our asset allocation strategy was a balance-wheel approach,” he said about him. “On the one hand, we recommend holding short duration, floating rate assets to manage the risk of rate hikes. On the other hand, more traditional core bond and total return strategies with longer duration.” Examples of traditional fixed income include multi-sector investment grade bonds, including corporations, Caron said. BlackRock also said it believes longer rates could rise as the US Federal Reserve tightening has only “begun”. But for now, he has urged caution on longer-dated bonds. “We urge patience as we believe we will see more attractive levels to enter long-term positions in the coming months,” said BlackRock.