According to some fund managers and strategists, the latest threat to stocks is no longer a macro risk – it is an increase in the 2-year Treasury yield. Short-term, relatively risk-free Treasury bonds and funds are in the limelight again as yields on 2-year Treasuries continue to rise. On Wednesday, it rose to 4.1%, the highest level since 2007. During the Asia hour till Thursday, it rose to 4.124%. John Petrides, portfolio manager at Tocqueville Asset Management, said, “The new headwind for the stock is not just about inflation, a potential recession or a fall in earnings projections, but from the ‘competitive threat’ that rising interest rates could further push bond yields.” Makes it more attractive.” CNBC. “For the first time in a long time, the TINA market (with no stock options) is no longer there. Yields on short-term bonds are now forcing,” he said. Destination Wealth Management founder Michael Yoshikami agreed that bonds have become a “relatively compelling option” and could prove to be an “inflection point” for stocks. Whereas Mike Wilson, chief US equity strategist at Morgan Stanley, said that bonds provide stability in today’s volatile markets. “While Treasury bonds run the risk of high inflation [and the] The Fed, reacting to that, certainly still offers a safer investment than stocks,” he told CNBC’s “Squawk Box Asia” Wednesday. “To be honest, I’m surprised that we’ve Haven’t seen a big flight to that safety before. Data from BlackRock, the world’s largest asset manager, shows that investors are piling into short-term bond funds. Inflows into short-end bond ETFs totaled $8 billion so far this month – BlackRock said Tuesday that it has the biggest short-end bond inflows since May. Meanwhile, the US-listed short-term Treasury ETF has attracted $7 billion in inflows so far in September — up from the volume of inflows last month. six times, BlackRock said. Here’s how to allocate your portfolio right now, say analysts. For Tocqueville Asset Management’s Petrids, the traditional 60/40 portfolio is back. It sees investors hold 60% of their portfolio in stocks and 40% in stocks. % in bonds. “At current yields, the portfolio’s fixed income allocation will contribute to the expected rates of return,” he said. and get the yield from your portfolio to meet the cash flow distribution.” Here’s a look at how Citi Global Wealth Investments has shifted its allocation, a Sept. 17 report According to: The bank removed the short-term US Treasury from its largest underweight allocation, and increased its allocation to the US Treasury overall. It also reduced its allocation to equities, but remains overweight on dividend growth stocks. Citi said 2-year Treasury bonds aren’t the only attractive option. “The same goes for high-quality, short-term spread products, such as municipal bonds and corporates, with many trading at taxable equivalent yields closer to 5%,” Citi said. “Right now, savers are also sending inflows into higher-yielding money funds because the yield eclipses the safest bank deposit rates.” Petrids said 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 can continue down its path of recession, clients want greater access to liquidity,” he said. What about long-dated bonds? Morgan Stanley said in a September 19 note that global macro hedge funds were betting on a further 50 basis points increase in the 10-year Treasury yield. The investment bank said it could send the S&P 500 to a new year low of 3,600. The index closed at 3,789.93 on Wednesday. Morgan Stanley analysts wrote, “If these materialize, we believe the recession could become more extreme in the near future, and the risk of over-reaction of the market will increase. We are at risk. Repeat staying on the defensive and waiting for more signs of surrender.” According to Jim Caron, portfolio manager at Morgan Stanley Investment Management, rising rates also mean the economy will slow down next year, and longer-term bonds could benefit from this. “Our asset allocation strategy has been a barbell approach,” he said. “On the one hand we recommend owning short term and floating rate assets to manage the risk of rising rates. On the other hand, more traditional core fixed income and total return strategies with longer duration.” Examples of traditional fixed income include multi-sector investment-grade bonds, including corporate ones, Caron said. BlackRock also said it believes a longer rate hike could be possible, noting that the US Federal Reserve’s tightening is “just getting started.” But for now, it urged caution on longer-term bonds. “We urge patience as we believe we will see more attractive levels to enter long-term positions over the next few months,” BlackRock said.