A rise in long-term interest rates becomes dangerous for the equity market when it reduces the expected excess return on equities to the point where it is no longer detrimental to hold bonds

Long-term interest rates are likely to rise more in the United States than in the euro zone, given the prospect of a less expansionary monetary policy. Is this rise in long-term interest rates a threat to the equity market? Today, long-term interest rates are considerably lower than the average return on equities: no investor can imagine switching from equities to bonds, which protects the equity market. For this to happen, long-term interest rates, plus a normal risk premium, would have to be able to move closer to the expected return on equities. This would require a 10-year interest rate of around 5.9% in the United States and 5.0% in the euro zone, which is not imaginable today.