Investors Take Dangerous Bet on Fed as Treasury Bond ETF Backfires

Stock market bulls are embracing the recent surge in bond yields, believing that it signals the completion of the Federal Reserve's hawkish mission and the tightening of financial conditions, which in turn frees equities from restraints. However, this view is seen as dangerous by some analysts who argue that high bond yields pose a threat to stock valuations and increase competition for risk capital. The attractiveness of yield-bearing assets is growing, potentially drawing investors away from stocks. While restrictive monetary policy has tightened financial conditions, it also indicates a teetering economic outlook. The uncertainty lies in what happens at the long end of the yield curve as the US government's free-spending ways become a bigger risk to stability.