With long term treasury yields solidly above 5.00% they are becoming more attractive to asset allocators. This would lead to shifts away from domestic stocks to domestic bonds, putting pressure on the stock market. But the rise in yields may not be over.

Even as asset allocators find Treasurys more attractive, rising bond yields in Europe and Japan may mean that non-U.S. investors will see Treasurys as less attractive. And if worries about inflation persist, that would put more pressure on Treasurys.

However Justin Lahart in the Wall Street Journal notes that there is still a big spread between treasuries and the earnings yield on the S&P 500. This could preclude any big move away from bonds into stocks.

Part of the rise in interest rates may be due in part to rising investment returns in Japan. Yuka Hayashi and Justin Lahart again in the Wall Street Journal note rising rates in Japan are causing ripple effects in the global capital markets. Japanese investors had sought out higher yielding investments around the world when the Japanese economy was in a funk and yields hovered around 1.0%. That however is changing,

"As JGB yields rise, there are more opportunities for investors in Japan to invest internally," says Nasri Toutoungi, managing director at Hartford Investment Management, a large U.S. money manager. "As a result, as rates rise in Japan, rates rise globally."

Steven Towns at ETF Investor warns that the competition from rising Japanese interest rates could put a lid on the Japanese stock market. After a strong run there are ample reasons why the Japanese market could be in for at least a rest.

An global environment rich in higher interest rates makes it increasingly difficult to make money in a number of asset classes. Gregg Greenberg at TheStreet.com reviews the attraction of the so-called "inverse bond funds" that allow investors to bet on higher long term treasury yields. Greenberg rightly notes the difficulty in timing these bets and the high expense ratios of these funds.

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