The latest threat to equities isn’t any macro risk right now – it’s yields on two-year Treasuries that are rising, according to several fund managers and strategists. Short-term, relatively risk-free Treasuries and funds are back in the spotlight as yields on 2-year Treasury notes continue to rise. On Wednesday, it hit 4.1% – the highest level since 2007. As of Thursday Asian time, it edged higher to 4.124%. “The headwind for equities is not just inflation, a potential recession or even a drop in earnings estimates, but from the ‘threat’,” said John Petrides, portfolio manager at Tocqueville Asset Management. competitive threat’ that rising interest rates make bond yields more attractive,” John Petrides, portfolio manager at Tocqueville Asset Management, told CNBC. “For the first time in a long time, the TINA (No Alternative to Stocks) market is gone. Short-term bond yields are very attractive right now,” he said. Michael Yoshikami, founder of Destination Wealth Management, agrees that bonds have become a “relatively attractive alternative” and could prove to be an “inflection point” for stocks. While Mike Wilson, chief US equity strategist at Morgan Stanley, says bonds offer stability in today’s volatile markets. “While Treasuries have a higher risk of inflation [and the] The Fed has reacted to that, they certainly still offer a safer investment than stocks,” he told CNBC’s “Squawk Box Asia” on Wednesday, based on data we’ve seen. “Data from BlackRock, the world’s largest asset manager, shows that investors have poured money into short-term bond funds. Flow into short-term bond ETFs stands at $8 billion so far this month – BlackRock says largest short-term bond inflows since May. Meanwhile, short-term Treasury ETFs listed in the US attracted $7 billion in inflows in September – six times the volume of inflows last month, BlackRock said. stocks have struggled, with the S&P 500 down about 4% so far this month. How to Allocation So should investors dump stocks and invest in bonds? Here’s what analysts say about your portfolio allocation right now. For Tocqueville Asset Management’s Petrides, the traditional 60/40 portfolio is back. This shows that investors put 60% of their portfolio in stocks and 40% in bonds. “Given current yields, allocating fixed income to a portfolio can help contribute to an expected rate of return and help those looking to reap the benefits of a portfolio,” he said. investments to meet the cash flow distribution. Here’s a look at how Citi Global Wealth Investments changed its allocation, according to a September 17 report: The bank removed short-term US Treasuries from the largest underweight allocations and increased the allocation. supplement to the US Treasury as a whole. It also reduced the allocation to stocks, but was still overweight for dividend growth stocks. Citi added that the 2-Year Bonds are not the only attractive option for bonds. “The same goes for high-quality, short-maturity arbitrage products, such as municipal and corporate bonds, with many trading at roughly equivalent taxable yields,” Citi said. 5%. “Right now, savers are also sending money into higher-yield funds as yields eclipse the safest bank deposit rates.” Petrides added that investors should exit private equity or alternative asset investments, and shift their allocation to fixed income. “Private equity is also illiquid. In a market environment like this, and if the economy can continue down a downturn, clients may want more access to liquidity. account,” he said. What about long-term bonds? Morgan Stanley in a September 19 note said that global macro hedge funds are betting on another 50 basis point rally in 10-year Treasury yields. This could take the S&P 500 to a new year-to-date low of 3,600, the investment bank said. The index closed at 3,789.93 on Wednesday. “If these come to fruition, we believe the downside could become more extreme in the near-term and risk the market overreacting. According to Jim Caron,” Morgan Stanley analysts wrote. , Portfolio Manager at Morgan Stanley Investment Management, there is a risk that the economy will slow next year and long-term bonds could benefit from this, he continued: “Financial allocation strategy Our asset is a weighted approach. “On one hand, we recommend owning assets with short maturities and floating rates to manage the risk of rising rates. On the other hand, core fixed-income and gross-return strategies are more traditional with a longer duration.” Caron says examples of traditional fixed-income include multi-sector investment-grade bonds, including including companies, BlackRock also said it believes longer rates could rise, as US Federal Reserve tightening has only “been started.” But for now, it recommends caution. “We encourage patience as we believe we will see more attractive levels to enter longer positions over the next few months,” BlackRock said. .