Morgan Stanley's Chief U.S. Strategist Michael Wilson: The recent rise in U.S. Treasury yields is primarily driven by an increase in term premium rather than higher growth expectations. I attribute this to a newly discovered (and reasonable) concern about how to finance the ongoing fiscal deficit, as reverse repurchase tools have been exhausted following increased Treasury financing over the past few years, necessitating an extension of maturities. At the beginning of December, we suggested that the 10-year U.S. Treasury yield range of 4.00-4.50% is the "optimal point" for stock valuations. We believe that a breakout of the 10-year Treasury yield above 4.50% could increase the interest rate sensitivity of stocks, as this is an important threshold for the "no landing" narrative to re-enter market pricing in the spring of 2024. As rates broke this level in December, stock valuations were compressed, and the correlation between stock returns and bond yields decisively stabilized in negative territory, which has remained at this level to date. Importantly, interest rate sensitivity is bidirectional. In fact, following last week's CPI report, the correlation between stock returns and yields declined again as the stock market surged significantly on the back of falling rates. All of this supports our latest view on the U.S. stock market—that the direction of the index (beta) will primarily depend on the level and direction of back-end rates and term premium. This negative correlation between stocks and yields may persist until the 10-year yield falls below 4.50% and/or the term premium continues to decline.