OK, stating the obvious quickly, if bond yields rise (on inflation fears, more rate hikes or whatever) your average investor/hedge fund will note that bonds become comparatively more attractive than stocks when weighing up risk/yield. How high would bond yields need to creep in order to see a mass exodus of funds from investment in stocks (seeking div yield + capital growth) to bonds (seeking less risk + sufficient compensation for money off corporate table)? This is the game we play every day when trading the markets but I have to admit that I am a bit wary of the fact that I don't know where your typical bank, hedge fund or whatever, would draw the line on putting their chips on risk free vs expected returns. I'm sure it doesn't come down to a pure mathematical equation, as fundamental data would distinguish their outlook on the return posible from stocks, but surely there has to be a rule of thumb where the attractiveness of bonds becomes significantly influential versus an inferior dividend yield from stocks.....
Rule of thumb? If you believe that the long-term average rate of return for stocks is ~8% and if you're a fundamentally-minded institutional investor, you'd buy bonds with both hands when investment-grade yields get to those levels. You'd raise cash by selling off stocks.
speaking personally, for my non-trading retirement style accounts, I will start to buy the 10 year at 5.75% and start to ladder in on the 30 year at 6%. Will probably split my 30 year holdings between zeroes and coupons with the percentage of zeroes going higher as we approach 8% on the long bond. It is an anti-deflation play. It has been suggested that current laws for pension funds, etc support bond buying above 6% for the 30 year.