As US Treasury yields continue their upward trajectory, Wall Street is increasingly focused on identifying the precise threshold where equity valuations begin to crack under the pressure of higher borrowing costs.

The global head of asset allocation at SocGen, Alain Bokobza, has drawn a clear line in the sand at the 5.5% level. In his assessment, once the 10-year Treasury yield climbs to that mark, the boost from rising corporate earnings will no longer be sufficient to offset the negative impact of higher financing expenses on stock prices, ushering in a period of meaningful pressure for equities.

Speaking in an interview on Monday, Bokobza noted that worldwide earnings estimates have been revised upward significantly this year, helping to keep the equity risk premium from deteriorating sharply even as yields moved higher. "Stocks are not more expensive today than they were at the start of the year," he said.

However, he cautioned that 5.5% represents the point at which upward earnings revisions can no longer prop up valuations, meaning "equities will come under pressure" beyond that mark. As of the latest reading, the 10-year Treasury yield stands at 4.8%, with cash markets closed for the Labor Day holiday.

Bond markets have recently resumed their role as the dominant force steering investor sentiment in the stock market. The renewed rally in oil prices driven by escalating US-Iran tensions, a revival of inflation concerns, hawkish signals from both the Fed and the European Central Bank, growing anxiety over fiscal deficits, and the surge in capital spending tied to the AI boom all contributed to pushing yields higher.

Earnings upgrades provide support, but the margin for error is shrinking

Bokobza highlighted that corporate earnings projections have been raised substantially across global markets this year, serving as the primary buffer that has allowed equities to hold their ground in a rising-yield environment.

Yet this cushion has its limits. He defines 5.5% as the inflection point where earnings growth loses its protective effect on valuations entirely, and beyond that threshold, the drag from higher borrowing costs will systematically weigh on the relative appeal of owning stocks.

Grace Peters at JPMorgan remarked last week that a move in the 10-year Treasury yield to 5% would carry significant psychological weight and could provoke a reflexive selloff in equities. Similarly, Emmanuel Cau at Barclays indicated that a yield of 5% would prompt investors to turn considerably more cautious on the outlook for stocks.

A structurally higher nominal GDP path adds persistent pressure

Bokobza traces the underlying driver of the current yield surge to a "long-term structural rise" in nominal GDP. He attributes this trend to a confluence of factors, including sustained fiscal expansion across major economies such as Germany and Japan, persistently elevated inflation, and the massive capital requirements tied to AI infrastructure development.

He dates the beginning of this transformation to the early 2020s, describing it as a fundamental paradigm shift with no signs of reversing in the near term. From this perspective, the upward drift in yields is not merely a function of monetary policy decisions but is embedded in a longer-cycle realignment of the broader economic landscape.

Central bank tightening expectations remain modest, and the cycle is not over

Even as concerns about sticky inflation persist, Bokobza believes the scope for further rate hikes from the Fed and the ECB is relatively limited, and not enough to derail the current economic expansion or meaningfully alter inflation expectations.

In his base-case scenario, equity markets are not facing an imminent systemic collapse. Instead, investors should expect a gradual stress test, with stocks continuing to feel the squeeze as long as yields remain elevated. For market participants, the zone between 4.78% and 5.5% is likely to become the most sensitive battleground for the stock-bond relationship in the months ahead.