The yield on the 10-year Treasury bond is not too far from the critical 5% mark, and for investors, this could be the financial equivalent of a seismic portfolio shift.

Historically, when bond yields rise this high, they don't just invite competition with stocks: They start stealing the show.

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In a note shared with clients on Friday, Bank of America analyst Savita Subramanian indicated that a 5% yield is the level at which bonds start to be more attractive than stocks.

Here's the logic: stocks carry risk, volatility, and higher expected returns. Bonds, especially Treasuries, the opposite.

If both assets, for some reason, offer a similar return, why bother with the headaches of equities?

The logic is tied to the equity risk premium (ERP) — the extra return investors demand for holding riskier stocks instead of safer bonds.

Suppose a 10-year Treasury bond yields a 5% return with virtually no risk. In that case, it becomes harder to justify holding volatile equities unless they can deliver returns well above that level.

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What The Data Says

The numbers don't lie: as yields climb, stock allocations typically fall. BofA's proprietary sell-side indicator shows that when 10-year yields rise above 5%, Wall Street tends to trim stock allocations.

When yields hit 6% or high, the average investor portfolio's equity allocation shrinks to around 50%.

David Rosenberg, a veteran economist, echoed this sentiment on social media platform X, writing earlier this week, "With this move in bond yields, we are now just 10 basis points away from the Equity Risk Premium shifting negative. Ergo, investors are willing to pay to take on equity risk instead of getting paid to."

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But Wait—Stocks Don't Always Follow the Rules

Before you start dumping your Nvidia Corp. (NASDAQ:NVDA) shares for Treasuries, it's worth noting that the equity risk premium isn't perfect at predicting short-term market moves.