Eoin Treacy's view However, that short-term support only masks some of the problems which underlie many western sovereign markets such as the massive increase in supply, low yields and dependence on some form of quantitative easing to support the market. Unless, one is an avid believer in the long-term deflationary hypothesis (which incidentally is likely to receive more air time as long as markets remain in a corrective phase) then one would have to assume that it is only a matter of time before government bond yield rise enough to draw money away from stock markets, or equities fall enough to reintroduce the so-called flight to quality in government bonds.

To date, sovereign bonds have been relatively steady in the face of a sell-off in stock and commodity markets and at current levels are not an impediment to stock markets. A significant move in US government bond yields would be needed to create such a situation. Here is a section by David from Comment of the Day on January 11th which remains equally true today:

I will take my cue from the chart action, with particular interest in how higher yields affect stock markets. For me, a sustained move above 4% by US 10-Year Treasuries (historic, monthly & weekly) will be equivalent to a yellow caution light for equity investors. Above 5%, stock markets could be in dangerous territory, as we saw in the last cycle.