Wall Street is 'missing the point' when it comes to bonds, market watcher says

The bond market has gone wild.

Treasury yields are on the rise, as the 10-year note yield on Thursday jumped to its highest level since March and the 2- and 5-year Treasury yields hit their highest levels since 2008 and 2011, respectively. This action has sparked talk of the multidecade bull run in bonds coming to an end, with what could be a negative impact on equities.

After all, U.S. stocks closed modestly lower on Thursday as yields climbed. But equity strategist Matt Maley believes the best way to think about the Treasury market is not the degree to which rising rates will impact the stock market, but rather how rising interest rates will affect the amount of leverage — or debt to finance purchases — in the marketplace now. The Miller Tabak straegist explains why.

• Everybody seems to be asking the question of whether higher interest rates will mean higher competition for stocks, but this is missing the point. The real issue is what impact higher rates have on leverage, as there's more leverage in the financial system than ever before as measured by total worldwide debt.

• Furthermore, corporate firms' margin debt in the U.S. sits near all-time highs. As rates move higher, the cost of that leverage goes up, and eventually leverage will have to be unwound.

• The kind of unwinding won't appear as it did during the financial crisis, but a meaningful move about 2.6 percent on the U.S. 10-year yield will likely cause a headwind for the stock market. Should this occur, investors ought to raise cash allocations in their portfolios.

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Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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