"Vigilante" is rarely used in a happy light. The Montreal Gazette had a story this year about a pothole vigilante-an area landscaper making secret repairs to neglected public roads, putting his asphalt on the line under threat of fine and punishment. But more often, a vigilante is a villain or deeply flawed hero who skips due process to punish the unrighteous.

That makes all this recent talk about bond vigilantes unsettling. If fixed-income antiheroes are punishing spendthrift politicians by sending Treasury yields higher, will the stock portfolios of the innocent get caught in the crossfire? And if so, at what level of yield should we panic?

Many investors seem to view 5% on the 10-year Treasury as a tipping point, and we aren't far off at 4.7%, up half a point this year. Rising bond yields can hurt stocks in multiple ways: tempting stock investors to sell and put more in bonds, raising corporate borrowing costs, and lowering the mathematical value today of money that companies will earn down the road. That last one can be particularly hard on go-go growth stocks with slim earnings and high hopes.

There is only anecdotal evidence for the 5% tipping point theory. In 2023, the Federal Reserve had been raising short-term interest rates for more than a year, from near zero to over 5%, to fight inflation. Longer bond yields had lagged behind on the expectation that high short rates would lead to recession, cooling inflation, and bringing rates back down. Suddenly, the 10-year Treasury yield ran up by a percentage point in the back half of the year, topping 5% in October for the first time since 2007. Why? Robust economic data convinced investors that the Fed would keep rates higher for longer than they had expected. Runaway government deficits added to the anxiety. Probably, anyhow-the bond market doesn't issue a statement with its exact reasons.

Stocks protested. The S&P 500 fell 10.3% from its July high to its October low, meeting-just barely-the commonly cited definition of a correction, with the biggest declines coming at the end, near that 5% Treasury mark. Coincidentally, Succession and Billions, hit television peep shows into the lives of the ultrawealthy, aired their final seasons that year. The writing seemed to be on the wall for stock bulls-although this particular writing said you're still up 192% in a decade. Then yields suddenly dropped, and stocks jumped 14% in November and December.

The clear lesson from this sample size of one: A 5% Treasury yield rattles stocks, but the market bounces back if you give it two months. But then there's 1966. President Lyndon B. Johnson was ramping up spending on both "guns and butter"-the Vietnam War and his Great Society programs, like Medicare and food stamps. Congress had just cut rather than raised taxes. Deficits swelled. Inflation roared. Bondholders balked. The 10-year Treasury yield topped 5% that summer and forgot to turn back, reaching double digits by the late '70s.

Stock investors suffered a lost decade and a half, with valuations collapsing, and the S&P 500, after subtracting inflation, losing more than 50% by 1981. By then, TV didn't look like Billions. The drivers on Taxi were always taking second jobs, and Archie Bunker seemed obsessed with the thermostat and the price of meat.

Goldman Sachs made a study last year of how the level of bond yields affects stock returns. The relationship, surprisingly, was that there was no clear relationship. Stocks have shined during periods when the 10-year Treasury yielded less than 3% and over 6%. What matters, the authors concluded, is how quickly yields have changed, and why.

Bond yields have risen recently due to sticky inflation; a resilient economy and "higher for longer" view of the Fed; and runaway government deficits, which recently brought the national debt to more than $40 trillion. I think so, anyhow-again, the market doesn't give reasons. What's troubling about that last point is the comparison with 1966. Back then, markets were tripped up by yearly deficits exceeding 1% of the size of the economy and a national debt hitting 40%. Those numbers are now closer to 6% and 125%.

I put in an only slightly panicked call to Jared Woodard, head of the research investment committee at Bank of America. "I think 5% is your warning shot, and 7% is the one that really hurts," he says of 10-year Treasury yields. He bases this in part on the 1990 yield run-up that set off Japan's lost decades for stock investors. To his eye, the recent rise in U.S. yields is no reason for alarm. "Inflation swaps are unchanged on the year, which, given what's happened in the Middle East and in Ukraine, and in...budget deficits, is kind of shocking," he says. "So, let's not talk about a loss of Fed credibility, never mind runaway inflation, when every market-based measure we can find says there's no sign of panic or even incremental worsening."

A 5% Treasury yield is unlikely to pull investors from stocks at a time of soaring company profits, Woodard reckons, especially when returns on long, safe bonds have stunk in recent years, and look likely to continue to stink. Venturesome investors can complement their Treasuries with peppier sources of yield or total return. Woodard likes emerging market bonds; fallen angels, or corporate bonds that are just a tick below investment grade; collateralized loan obligations, which are corporate loans sliced into tranches, with the AAA stuff getting paid first; and commodity strategies that dynamically rebalance holdings.

For exchange-traded fund buyers, choices include Vanguard Emerging Markets Government Bond, yielding 6.1%; iShares Fallen Angels USD Bond, 6.8%; Janus Henderson AAA CLO, 4.9%; and iShares GSCI Commodity Dynamic Roll Strategy, whose yield varies. It holds short, safe bonds for collateral while buying commodity futures. It has returned 9.9% a year over the past decade, versus 15.2% for the S&P 500 and 1.4% for the iShares Core U.S. Aggregate Bond ETF.