BofA says rising long-end Treasury yields are heating up markets, with bank stocks seen as the key signal for crowded trades

Bank of America’s latest Flow Show argues that long-end U.S. Treasury yields, not earnings, are becoming the main variable for pricing risk assets. With the 30-year Treasury yield at 5.2% and the 30-year real yield at 3%, the bank says tighter financial conditions are starting to matter more than incremental changes in corporate profits. The report does not call for a blanket bearish stance on equities. Instead, it frames the current setup as a test of whether markets can keep absorbing higher funding costs while valuations, positioning and policy expectations remain stretched. BofA points to heavy inflows into crowded sectors over the past four weeks, including $52.8 billion into technology funds and $8.8 billion into financial funds, alongside a 9.6 reading in its bull-and-bear indicator and a 3.6% global fund manager cash level. Its key warning centers on bank stocks. If yields rise and banks continue to benefit, the market can still read higher rates as a sign of economic strength. But if yields keep climbing while bank shares start falling, that would suggest higher rates are shifting from a growth signal to a financial tightening shock. In that case, BofA says markets could rotate away from high-beta and cyclical crowded trades toward defensives, dividend plays, the U.S. dollar and duration assets.